<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 22, 1996
REGISTRATION NO. 33-65129
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
OCCIDENTAL PETROLEUM CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 2869 95-4035997
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
10889 WILSHIRE BOULEVARD DONALD P. DE BRIER, ESQ.
LOS ANGELES, CALIFORNIA 90024 GENERAL COUNSEL
(310) 208-8800 OCCIDENTAL PETROLEUM CORPORATION
(ADDRESS, INCLUDING ZIP CODE, AND 10889 WILSHIRE BOULEVARD
TELEPHONE NUMBER, INCLUDING AREA CODE, OF LOS ANGELES, CALIFORNIA 90024
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) (310) 443-6176
(NAME, ADDRESS, INCLUDING ZIP CODE, AND
TELEPHONE NUMBER, INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
</TABLE>
------------------------
COPY TO:
JEROME L. COBEN, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM
300 SOUTH GRAND AVENUE
LOS ANGELES, CALIFORNIA 90071
(213) 687-5000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: The
securities will be issued upon the redemption of shares of Class A Common Stock
of INDSPEC Holding Corporation as described herein.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
OCCIDENTAL PETROLEUM CORPORATION
CROSS-REFERENCE SHEET FOR REGISTRATION STATEMENT ON FORM S-4
AND PROXY STATEMENT/PROSPECTUS
<TABLE>
<CAPTION>
FORM S-4 CAPTION IN PROXY
ITEM NUMBER AND CAPTION STATEMENT/PROSPECTUS
-------------------------------------------------- -------------------------------------
<S> <C> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus.................. Facing Page of Registration
Statement; Cross-Reference Sheet;
Cover Page of Proxy
Statement/Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus....................... Available Information; Incorporation
of Certain Documents by Reference;
Table of Contents
3. Risk Factors, Ratio of Earnings to
Fixed Charges, and Other Information............ Summary of Proxy
Statement/Prospectus; Risk Factors;
Selected Historical Financial
Information of Occidental;
Comparative Per Share Data;
Comparative Market Prices and
Dividends; Projected Financial
Information of INDSPEC; Selected
Historical Financial Information of
INDSPEC
4. Terms of the Transaction.......................... Available Information; Summary of
Proxy Statement/Prospectus; The
Transactions; The Special Meeting;
The Merger; The Restated
Certificate and Restated Bylaws;
The Merger Agreement; The Exchange
Offers; The Exchange Agreement; The
Voting Agreement; The Enabling
Agreement; Comparison of Rights of
INDSPEC Stockholders and Occidental
Stockholders
5. Pro Forma Financial Information................... Not Applicable
6. Material Contacts With the Company Being
Acquired........................................ The Transactions
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to Be Underwriters... Not Applicable
8. Interests of Named Experts and Counsel............ Legal Matters; Experts
9. Disclosure of Commission Position on
Indemnification For Securities Act
Liabilities..................................... Not Applicable
B. INFORMATION ABOUT THE REGISTRANT
10. Information With Respect to S-3 Registrants....... Available Information; Incorporation
of Certain Documents by Reference
11. Incorporation of Certain Information by
Reference....................................... Available Information; Incorporation
of Certain Documents by Reference
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
FORM S-4 CAPTION IN PROXY
ITEM NUMBER AND CAPTION STATEMENT/PROSPECTUS
-------------------------------------------------- -------------------------------------
<S> <C> <C>
12. Information With Respect to S-2 or S-3
Registrants..................................... Not Applicable
13. Incorporation of Certain Information by
Reference....................................... Not Applicable
14. Information With Respect to Registrants
Other Than S-3 or S-2 Registrants............... Not Applicable
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information With Respect to S-3 Companies......... Not Applicable
16. Information With Respect to S-2 or S-3
Companies....................................... Not Applicable
17. Information With Respect to Companies
Other Than S-2 or S-3 Companies................. Summary of Proxy
Statement/Prospectus; Comparative
Market Prices and Dividends;
Business of INDSPEC; Selected
Historical Financial Information of
INDSPEC; Management's Discussion
and Analysis of Financial Condition
and Results of Operations;
Management of INDSPEC; Certain
INDSPEC Relationships and Related
Transactions; Principal INDSPEC
Stockholders; Financial Statements
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or Authorizations
Are to be Solicited............................. Cover Page of Proxy Statement/
Prospectus; Summary of Proxy
Statement/Prospectus; The Special
Meeting; The Merger; Certain
INDSPEC Relationships and Related
Transactions; Management of
INDSPEC; Principal INDSPEC
Stockholders; Dissenting
Stockholders' Rights of Appraisal
19. Information if Proxies, Consents or Authorizations
Are Not to be Solicited, or in an Exchange
Offer........................................... Not Applicable
</TABLE>
<PAGE> 4
INDSPEC HOLDING CORPORATION
PROXY STATEMENT
------------------------
OCCIDENTAL PETROLEUM CORPORATION
PROSPECTUS
This Proxy Statement/Prospectus is furnished in connection with the
solicitation by the Board of Directors of INDSPEC Holding Corporation, a
Delaware corporation ("INDSPEC"), of proxies for use at a special meeting of its
stockholders ("Stockholders") to be held at 10:00 a.m., local time, on March ,
1996, at INDSPEC's offices at 411 Seventh Avenue, Suite 300, Pittsburgh,
Pennsylvania, and at any postponements or adjournments thereof (the "Special
Meeting"), for the purposes described below. This Proxy Statement/Prospectus and
the enclosed proxy card are first being mailed to Stockholders on or about
February , 1996.
At the Special Meeting, the Stockholders will be asked to consider and vote
upon a proposal to approve and adopt a Merger Agreement, dated as of November
10, 1995 (the "Merger Agreement"), by and between Roundtable Corp., a recently
formed Delaware corporation ("Roundtable"), and INDSPEC. The Merger Agreement
provides for the merger (the "Merger") of Roundtable with and into INDSPEC, with
INDSPEC being the surviving corporation. At the effective time of the Merger,
(i) each outstanding share of Common Stock, par value $.01 per share ("INDSPEC
Common Stock"), of INDSPEC (other than shares held by Roundtable or Stockholders
who have perfected appraisal rights under Delaware law) will be converted into
one share of INDSPEC's new Class A Common Stock, par value $.01 per share
("Class A Common Stock"), (ii) each outstanding share of Common Stock, par value
$.01 per share ("Roundtable Common Stock"), of Roundtable will be converted into
the right to receive one share of INDSPEC's new Class B Common Stock, par value
$.01 per share ("Class B Common Stock"), (iii) each share of INDSPEC Common
Stock held in the treasury of INDSPEC will be converted into one share of Class
A Common Stock, (iv) each outstanding share of INDSPEC Common Stock held by
Roundtable will be cancelled and retired, and (v) INDSPEC's certificate of
incorporation and bylaws will be amended and restated. The shares of Class A
Common Stock and Class B Common Stock to be issued in the Merger are referred to
herein as the "Merger Consideration." For a more complete description of the
Merger and the Merger Agreement, see "The Merger" and "The Merger Agreement."
After the Merger, INDSPEC's amended and restated certificate of
incorporation (the "Restated Certificate") will provide, among other things, for
the creation of INDSPEC's new Class A Common Stock and Class B Common Stock.
Initially, each share of Class A Common Stock will entitle the holder thereof to
4.8 votes per share, and each share of Class B Common Stock will entitle the
holder thereof to one vote per share. Upon the occurrence of certain events, the
holders of both classes of stock will be entitled to one vote per share.
Initially, holders of Class A Common Stock and holders of Class B Common Stock
will elect separate classes of directors. Under certain circumstances, the Class
A Common Stock will be subject to redemption for shares of Common Stock, par
value $.20 per share ("Occidental Common Stock"), of Occidental Petroleum
Corporation ("Occidental").
(Text continued on the following page)
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DESCRIPTION OF CERTAIN
MATTERS THAT SHOULD BE CONSIDERED BY STOCKHOLDERS BEFORE VOTING.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
------------------------
The date of this Proxy Statement/Prospectus is February , 1996.
<PAGE> 5
The proposed Merger is one of a series of transactions (the "Transactions")
contemplated by an Agreement and Plan of Share Exchange, dated as of November
10, 1995 (the "Exchange Agreement"), by and between Occidental and INDSPEC,
pursuant to which Occidental would acquire a significant interest in INDSPEC.
See "The Exchange Agreement." Upon consummation of the Merger and subject to the
satisfaction of certain other conditions, the Exchange Agreement provides, among
other things, for Occidental to commence (i) an offer to exchange shares of
Occidental Common Stock for up to 8,504 shares of INDSPEC Class A Common Stock
and (ii) an offer to exchange shares of Occidental Common Stock for each
outstanding share of INDSPEC Class B Common Stock (together, the "Exchange
Offers"). The Exchange Offers will be made by Occidental pursuant to a separate
prospectus and a letter of transmittal which will be sent to all INDSPEC
stockholders. See "The Exchange Offers."
The number of shares of Occidental Common Stock to be delivered in exchange
for each share of Class A Common Stock and Class B Common Stock accepted in the
Exchange Offers will be equal to (i) the quotient obtained by dividing $131
million by the total number of shares of Class A Common Stock and Class B Common
Stock outstanding or subject to issuance upon the exercise of outstanding
warrants and options, determined as of the date (the "Closing Date") of the
closing (the "Closing") of the Exchange Offers, divided by (ii) the average of
the last reported sales prices of Occidental Common Stock on the New York Stock
Exchange on each of the twenty consecutive trading days ending on the fifth
trading day prior to the Closing Date (the "Occidental Common Stock Value").
Cash will be paid by Occidental in lieu of issuing any fractional shares of
Occidental Common Stock.
Upon the Closing of the Exchange Offers, Occidental will deliver to each
holder of shares of Class A Common Stock or options to purchase Class A Common
Stock that are not acquired by Occidental pursuant to the Exchange Offers,
whether or not tendered in the Exchange Offers, a pro rata portion of a number
of shares of Occidental Common Stock equal to $3 million divided by the
Occidental Common Stock Value (the "Additional Consideration"). Occidental has
agreed to pay the Additional Consideration to INDSPEC securityholders as
compensation for the redemption features of the Class A Common Stock. The
Federal income tax treatment of the Additional Consideration is subject to
uncertainty. See "The Exchange Offers -- Certain Federal Income Tax
Consequences."
Assuming that (i) the 59,047 shares of INDSPEC Common Stock outstanding or
subject to issuance as of February , 1996, remain the only shares outstanding
or subject to issuance, and (ii) the Occidental Common Stock Value is equal to
the closing price of $ per share for Occidental Common Stock on the New
York Stock Exchange on February , 1996, if the Closing were to occur on
February , 1996, each share of Class A Common Stock and Class B Common Stock
accepted in the Exchange Offers would be exchanged for shares of
Occidental Common Stock.
Upon consummation of the Exchange Offers, Occidental will own up to 38,000
shares of Class B Common Stock (including up to 8,504 shares of Class B Common
Stock which will have been converted from Class A Common Stock in accordance
with the Restated Certificate), representing approximately 64% of all INDSPEC
shares outstanding, determined on a fully diluted basis, and 45% of the voting
power of all INDSPEC shares outstanding.
Pursuant to a Voting Agreement, dated as of November 10, 1995 (the "Voting
Agreement"), by and among INDSPEC, Roundtable, certain INDSPEC Stockholders and
the Roundtable stockholders, Roundtable and such INDSPEC Stockholders have
agreed to vote their shares of INDSPEC Common Stock (representing approximately
68% of the shares outstanding as of February , 1996) in favor of the adoption
and approval of the Merger Agreement. In addition, certain INDSPEC Stockholders
have agreed to tender 1,886 shares of Class A Common Stock, and the Roundtable
stockholders have agreed to tender their 29,496 shares of Class B Common Stock,
to Occidental in the Exchange Offers.
Assuming that (i) the Occidental Common Stock Value is $ and (ii) the
Exchange Offers are fully subscribed, Occidental would issue an aggregate of
shares of Occidental Common stock pursuant to the Exchange Offers and as
Additional Consideration, representing aproximately % of the total number
of shares of Occidental Common Stock outstanding as of January 31, 1996.
Occidental Common Stock is listed and principally traded on the New York Stock
Exchange and the Pacific Stock Exchange under the symbol "OXY."
This Proxy Statement/Prospectus constitutes a prospectus of Occidental with
respect to the shares of Occidental Common Stock that may be issued upon the
redemption of Class A Common Stock issued in connection with the Merger. This
Proxy Statement/Prospectus also constitutes notice to the warrantholders under
the Warrant Agreement, dated as of April 20, 1989, pursuant to which warrants to
purchase INDSPEC Common Stock were issued, of the proposed Merger and the other
Transactions.
<PAGE> 6
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IN
CONNECTION WITH THE SOLICITATIONS OF PROXIES OR THE OFFERING OF SECURITIES MADE
HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY INDSPEC OR OCCIDENTAL. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, ANY SECURITIES, OR THE SOLICITATION OF A PROXY, IN ANY
JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE ANY SUCH
OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF INDSPEC OR OCCIDENTAL SINCE THE DATE HEREOF OR THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
AVAILABLE INFORMATION
Occidental is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by Occidental with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549; 7
World Trade Center, 13th Floor, New York, New York 10048; and Citicorp Center,
Suite 1400, 500 West Madison Street, Chicago, Illinois 60661. Copies of such
material can be obtained at prescribed rates from the Public Reference Room of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Such material
can also be inspected at the New York Stock Exchange, 20 Broad Street, New York,
New York 10005, and the Pacific Stock Exchange, 115 Sansome Street, Suite 1104,
San Francisco, California.
Occidental has filed with the Commission a registration statement on Form
S-4 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Securities offered hereby. As permitted
by the rules and regulations of the Commission, this Proxy Statement/Prospectus
does not contain all of the information set forth in the Registration Statement
and the exhibits and schedules thereto. Such additional information is available
for inspection and copying at the offices of the Commission. Statements
contained in this Proxy Statement/Prospectus or in any document incorporated by
reference herein as to the contents of any contract or other document referred
to herein are not necessarily complete, and in each instance reference is made
to the copy of such contract or other document filed as an exhibit to, or
incorporated by reference in, the Registration Statement, each such statement
being qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, previously filed by Occidental with the Commission
pursuant to the Exchange Act (File No. 1-9210), are incorporated herein by
reference:
(i) Annual Report on Form 10-K for the fiscal year ended December 31,
1994;
(ii) Quarterly Reports on Form 10-Q for the quarterly periods ended March
31, 1995, June 30, 1995 and September 30, 1995;
(iii) Current Reports on Form 8-K, dated January 25, 1995, April 20, 1995,
June 27, 1995, July 20, 1995, August 18, 1995, October 18, 1995,
October 25, 1995, December 21, 1995 and January 24, 1996; and
(iv) Registration Statement on Form 8-B, dated June 26, 1986 (as amended
by Form 8, dated December 22, 1986, Form 8, dated February 3, 1988,
Form 8-B/A, dated July 12, 1993, Form 8-B/A, dated March 18, 1994,
and Form 8-B/A, dated November 1, 1995).
All documents filed by Occidental pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Proxy
Statement/Prospectus and prior to the Special Meeting shall be deemed
i
<PAGE> 7
to be incorporated by reference into this Proxy Statement/Prospectus and to be a
part hereof from the date of filing such documents. Any statement contained
herein or in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this Proxy
Statement/Prospectus to the extent that a statement contained herein or in any
other subsequently filed document that is or is deemed to be incorporated by
reference herein modifies or supersedes such previous statement. Any statement
so modified or superseded shall not be deemed to constitute a part of this Proxy
Statement/Prospectus, except as so modified or superseded.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE,
WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS
PROXY STATEMENT/PROSPECTUS HAS BEEN DELIVERED, UPON WRITTEN OR ORAL REQUEST TO
OCCIDENTAL PETROLEUM CORPORATION, 10889 WILSHIRE BOULEVARD, LOS ANGELES,
CALIFORNIA 90024, ATTENTION: FREDERICK J. GRUBERTH, VICE PRESIDENT AND
TREASURER, TELEPHONE NUMBER (310) 208-8800. IN ORDER TO ENSURE TIMELY DELIVERY
OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY FEBRUARY , 1996.
ii
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Summary of Proxy Statement/Prospectus.......... 1
Risk Factors................................... 11
Absence of Public Market..................... 11
Class A Common Stock Subject to Redemption... 11
Substantial Leverage of INDSPEC.............. 11
Ownership by Occidental Prior to the
Conversion Date; Control by Occidental
After the Conversion Date.................. 11
Tax Treatment of Additional Consideration.... 12
Selected Historical Financial Information
of Occidental................................ 13
Comparative Per Share Data..................... 15
Comparative Market Prices and Dividends........ 16
The Companies.................................. 17
INDSPEC...................................... 17
Roundtable................................... 17
Occidental................................... 17
The Transactions............................... 17
The Merger................................... 18
The Exchange Offers.......................... 18
The Put Offer; Redemption of
Class A Common Stock....................... 19
Reasons for the Transaction; Recommendation
of the Board of Directors.................. 21
Opinion of Morgan Stanley.................... 23
Interests of Certain Persons in the
Transactions............................... 26
Projected Financial Information of INDSPEC..... 29
The Special Meeting............................ 31
Matters to be Considered at the Special
Meeting.................................... 31
Record Date.................................. 31
Voting Rights and Vote Required.............. 31
Security Ownership of Management and
Affiliates................................. 31
Voting Agreement............................. 31
Appraisal Rights............................. 31
Proxies...................................... 32
Expenses of Solicitation..................... 32
The Merger..................................... 32
Effective Time............................... 32
Form of the Merger........................... 33
Management of INDSPEC After the Merger....... 33
Treatment of Outstanding Options and
Warrant.................................... 33
Conditions to the Consummation of the
Merger..................................... 34
Regulatory Approvals......................... 34
Certain Federal Income Tax Consequences...... 34
Accounting Treatment......................... 35
The Restated Certificate and Restated Bylaws... 35
Capital Stock................................ 35
Preferred Stock.............................. 35
Class A Common Stock and
Class B Common Stock....................... 35
Conversion of Class A Common
Stock Acquired by Occidental............... 36
Redemption of Class A Common Stock........... 36
Board of Directors........................... 39
Amendment.................................... 41
Special Meetings of Stockholders............. 41
<CAPTION>
PAGE
------
<S> <C>
Directors' Liability......................... 41
The Merger Agreement........................... 41
Certain Representations and Warranties....... 41
Expenses..................................... 42
Amendment.................................... 42
Termination.................................. 42
The Exchange Offers............................ 42
Terms of the Exchange Offers................. 42
Additional Consideration..................... 43
Proration.................................... 43
Treatment of Vested Options.................. 43
Conditions to the Commencement
of the Exchange Offers..................... 44
Conditions to the Consummation
of the Exchange Offers..................... 45
Regulatory Approvals Required................ 45
Management of INDSPEC After
the Exchange Offers........................ 45
No Appraisal Rights.......................... 46
Certain Federal Income Tax Consequences...... 46
Accounting Treatment......................... 46
ESOP Participation........................... 47
The Exchange Agreement......................... 47
Representations and Warranties............... 47
Conduct of Business.......................... 47
No Solicitation of Acquisition Proposals..... 48
Expenses..................................... 48
Registration................................. 48
Indemnification and Insurance................ 49
Amendment.................................... 49
Termination.................................. 49
The Voting Agreement........................... 49
The Enabling Agreement......................... 50
Put Offer.................................... 50
Obligation to Sell Occidental Common Stock... 51
Tag-Along Rights............................. 51
Environmental Matters........................ 51
Funding Obligations.......................... 51
Treatment of Incentive Stock Options......... 52
Other Covenants.............................. 52
Business of INDSPEC............................ 53
INDSPEC...................................... 53
Products..................................... 53
Sales and Marketing.......................... 55
Competition.................................. 55
Raw Materials and Supplies................... 56
Distribution................................. 56
Customers.................................... 56
Research and Development..................... 56
Technology and Licensing..................... 57
Environmental Regulation..................... 57
Employees.................................... 58
Properties................................... 59
Legal Proceedings............................ 59
</TABLE>
iii
<PAGE> 9
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Selected Historical Financial Information
of INDSPEC................................... 60
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 61
Results of Operations........................ 61
Liquidity and Capital Resources.............. 64
Management of INDSPEC.......................... 65
Directors and Executive Officers of
INDSPEC.................................... 65
Executive Compensation....................... 68
Summary Compensation Table................... 68
Options/SAR Grants in Last Fiscal Year....... 69
Aggregated Option/SAR Exercises in Last
Fiscal Year and Fiscal Year-End Option/SAR
Values..................................... 69
Pension Plan................................. 70
Pension Plan Table........................... 70
Compensation of Directors.................... 71
Employment and other Agreements.............. 71
Certain INDSPEC Relationships and Related
Transactions................................. 73
Comparison of Rights of INDSPEC Stockholders
and Occidental Stockholders.................. 73
Certain Provisions of Occidental's
Certificate and Bylaws..................... 74
<CAPTION>
PAGE
------
<S> <C>
Occidental Rights............................ 74
Principal INDSPEC Stockholders................. 75
Dissenting Stockholders' Rights of Appraisal... 77
Independent Accountants........................ 79
Legal Matters.................................. 79
Experts........................................ 79
Index to Financial Statements.................. F-1
Annex I -- Agreement and Plan of
Share Exchange............................... I-1
Annex II -- Merger Agreement................... II-1
Annex III -- Form of Amended and Restated
Certificate of Incorporation of INDSPEC...... III-1
Annex IV -- Form of Amended and Restated
Bylaws of INDSPEC............................ IV-1
Annex V -- Voting Agreement.................... V-1
Annex VI -- Enabling Agreement................. VI-1
Annex VII -- Section 262 of the Delaware
General Corporation Law (Appraisal Rights)... VII-1
Annex VIII -- Opinion of Morgan Stanley & Co.
Incorporated................................. VIII-1
</TABLE>
iv
<PAGE> 10
SUMMARY OF PROXY STATEMENT/PROSPECTUS
The following is a summary of certain information contained elsewhere in
this Proxy Statement/ Prospectus. This summary is intended only to highlight
certain information contained in this Proxy Statement/Prospectus. It is not
intended to be complete in itself and is qualified in its entirety by reference
to the detailed information contained elsewhere herein, the documents referred
to herein and the Annexes hereto, including the Agreement and Plan of Share
Exchange attached hereto as Annex I and the Merger Agreement attached hereto as
Annex II. As used herein, unless the context indicates otherwise, "INDSPEC"
refers to INDSPEC Holding Corporation and its subsidiaries, and "Occidental"
refers to Occidental Petroleum Corporation and its subsidiaries and affiliates.
ALL INFORMATION WITH RESPECT TO INDSPEC CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS HAS BEEN PROVIDED TO OCCIDENTAL BY INDSPEC. STOCKHOLDERS
ARE URGED TO READ THIS PROXY STATEMENT/PROSPECTUS AND THE ANNEXES HERETO IN
THEIR ENTIRETY.
THE COMPANIES
<TABLE>
<S> <C>
INDSPEC Holding Corporation........ INDSPEC Holding Corporation is a Delaware corporation.
411 Seventh Avenue, Suite 300 INDSPEC Chemical Corporation is the operating subsidiary
Pittsburgh, Pennsylvania 15219 of INDSPEC. INDSPEC believes that it is the largest
(412) 765-1200 producer of resorcinol in the world and the sole
commercial producer of resorcinol in the United States.
Resorcinol is a chemical used primarily as a bonding and
stiffening agent in the manufacture of tires and tread
rubber. In addition, resorcinol is used in the
manufacture of high performance wood adhesives,
ultraviolet light stabilizers, sunscreens, dyestuffs,
pharmaceuticals, agrichemicals, carbonless paper and
fire retardant plastic additives. See "The
Companies -- INDSPEC" and "Business of INDSPEC."
Roundtable Corp.................... Roundtable was organized as a Delaware corporation by
c/o Castle Harlan Partners II, Castle Harlan Partners II, L.P. ("CHPII") and certain
L.P. other Stockholders solely for the purpose of engaging in
150 East 58th Street the Merger. Roundtable has engaged in no business
New York, New York 10155 activity and has no assets or liabilities other than (i)
(212) 644-8600 the 29,496 shares of INDSPEC Common Stock contributed to
it by CHPII and such other Stockholders (representing
approximately 63% of the shares of INDSPEC Common Stock
outstanding as of February , 1996) and (ii) its rights
and obligations under the Merger Agreement and the
Voting Agreement. See "The Companies -- Roundtable."
Occidental Petroleum Corporation... Occidental is a Delaware corporation that explores for,
10889 Wilshire Boulevard develops, produces and markets crude oil and natural
Los Angeles, California 90024 gas; engages in interstate and intrastate natural gas
(310) 208-8800 transmission and marketing; and manufactures and markets
a variety of basic chemicals, petrochemicals and
polymers and plastics. Occidental conducts its principal
operations through three subsidiaries: Occidental Oil
and Gas Corporation, MidCon Corp. and Occidental
Chemical Corporation. See "The Companies -- Occidental."
THE TRANSACTIONS
Summary............................ Occidental and INDSPEC intend to consummate a
series of Transactions pursuant to which
Occidental would acquire a significant interest
in INDSPEC and arrange for the possible
acquisition, under certain circumstances, of
the interests in INDSPEC not initially acquired
by Occidental in the Exchange Offers.
Occidental believes that its investment in
INDSPEC will provide it with
</TABLE>
1
<PAGE> 11
holdings in a specialty chemical business that
is complementary to Occidental's existing
chemical businesses. The Transactions include
(i) the Merger of Roundtable with and into
INDSPEC and (ii) the Exchange Offers, pursuant
to which Occidental will exchange shares of
Occidental Common Stock for shares of Class A
Common Stock and Class B Common Stock. After
the Exchange Offers have been completed, (i)
Occidental may, under certain circumstances, be
required to offer (the "Put Offer") to exchange
all outstanding shares of Class A Common Stock
for shares of Occidental Common Stock, and (ii)
the shares of Class A Common Stock may, under
certain circumstances, be redeemed for shares
of Occidental Common Stock (a "Redemption").
Occidental and INDSPEC structured the
Transactions to satisfy the following
objectives: (i) to facilitate the acquisition
by Occidental of substantially all of the
INDSPEC Common Stock owned by non-management
and non-employee Stockholders (primarily CHPII
and certain persons associated with CHPII),
(ii) to provide some immediate liquidity to
INDSPEC's management and employee Stockholders
through the Exchange Offers, and (iii) to
provide incentives for INDSPEC's management and
employee Stockholders to improve INDSPEC's
financial performance and reduce its
indebtedness through the timing, pricing and
other terms and conditions of the Put Offer and
the redemption provisions applicable to the
Class A Common Stock. See "The
Transactions -- Reasons for the Transactions;
Recommendation of the Board of Directors," "The
Merger," "The Exchange Offers," "The Restated
Certificate and Restated Bylaws -- Redemption
of Class A Common Stock" and "The Enabling
Agreement -- Put Offer."
Recommendation of the INDSPEC
Board of Directors.......... The INDSPEC Board of Directors has approved the
Exchange Agreement, the Merger Agreement, the
Enabling Agreement and the transactions
contemplated thereby as being in the best
interests of the Stockholders. In light of the
foregoing, the INDSPEC Board of Directors
unanimously recommends that the Stockholders
vote FOR approval and adoption of the Merger
Agreement. See "The Transactions -- Reasons for
the Transactions; Recommendation of the Board
of Directors."
Opinion of Financial Advisor
to INDSPEC.................... INDSPEC has engaged Morgan Stanley & Co.
Incorporated ("Morgan Stanley") and Castle
Harlan, Inc. ("Castle Harlan"), which acts as
investment manager to CHPII, to act as
financial advisors in connection with the
Transactions. Morgan Stanley has advised
INDSPEC's Board of Directors that, as of the
date of such opinion and subject to the various
considerations set forth therein, the
consideration to be received by the INDSPEC
Stockholders pursuant to the Exchange Agreement
(and related documents) is, in the aggregate,
fair from a financial point of view to such
Stockholders. See "The Transactions -- Opinion
of Morgan Stanley" and Annex VIII hereto.
2
<PAGE> 12
Interests of Certain Persons
in the Transactions........... In considering the recommendations of the Board
of Directors of INDSPEC with respect to the
Merger, Stockholders should be aware that CHPII
and certain members of INDSPEC's management and
Board of Directors have certain interests in
the Transactions that are in addition to the
interests of Stockholders generally. Four of
the seven members of INDSPEC's Board of
Directors are associated with Castle Harlan,
which is a financial advisor to INDSPEC and
CHPII. Also, these four members of INDSPEC's
Board of Directors, together with CHPII and
Frank Spinola, INDSPEC's President and a
director, have contributed an aggregate of
29,496 shares of INDSPEC Common Stock to
Roundtable. Mr. Spinola has contributed a
number of shares of INDSPEC Common Stock
approximately equal to one-third of the total
number of shares and options owned by him. As
stockholders of Roundtable, these four
directors, CHPII and Mr. Spinola will receive
shares of Class B Common Stock in the Merger,
all of which will be acquired by Occidental in
the Exchange Offers. In contrast, Occidental
will acquire no more than 8,504 shares of Class
A Common Stock pursuant to the Exchange Offers,
or approximately 33% of the shares of Class A
Common Stock, determined on a fully diluted
basis, excluding shares of Class A Common Stock
that certain stockholders have agreed not to
tender in the Exchange Offers. See "The
Transactions -- Interests of Certain Persons in
the Transactions." Mr. Spinola and certain
other directors have also retained INDSPEC
Common Stock which will be converted into Class
A Common Stock.
THE SPECIAL MEETING
Date, Time and Place of the
Special Meeting............. The Special Meeting will be held at 10:00 a.m.,
local time, on March , 1996, at INDSPEC's
offices at 411 Seventh Avenue, Suite 300,
Pittsburgh, Pennsylvania.
Matters to be Considered at
the Special Meeting............. At the Special Meeting, INDSPEC Stockholders
will consider and vote upon (i) a proposal to
approve and adopt the Merger Agreement and (ii)
such other matters as may properly come before
the Special Meeting. See "The Special
Meeting -- Matters to be Considered at the
Special Meeting."
Record Date................... The record date (the "Record Date") for the
Special Meeting is the close of business on
, 1996. Accordingly, holders of
record of INDSPEC Common Stock as of such date
will be entitled to notice of, and to vote at,
the Special Meeting. See "The Special
Meeting -- Record Date."
Voting Rights................. Each share of INDSPEC Common Stock is entitled
to one vote on any matter that comes before the
Special Meeting. INDSPEC's Employee Stock
Ownership Plan (the "ESOP") provides that
participants in the ESOP are entitled to direct
the ESOP trustee to vote the shares of INDSPEC
Common Stock allocated to their accounts with
respect to the Merger Agreement. See "The
Special Meeting -- Voting Rights and Vote
Required."
3
<PAGE> 13
Vote Required................. In order to effect the Merger, the Merger
Agreement must be approved by the affirmative
vote of the holders of a majority of the
outstanding shares of INDSPEC Common Stock. The
failure to vote shares, either by abstention or
non-vote, will have the same effect as a vote
against the Merger Agreement. See "The Special
Meeting -- Voting Rights and Vote Required."
Pursuant to the Voting Agreement, Roundtable
and certain other Stockholders have agreed to
vote their shares of INDSPEC Common Stock
(representing approximately 68% of the shares
outstanding as of February , 1996) in favor
of the adoption and approval of the Merger
Agreement. See "The Special Meeting -- Voting
Rights and Vote Required" and "The Voting
Agreement." It is a condition to Occidental's
commencement of the Exchange Offers that either
(i) holders of at least 90% of the outstanding
shares of INDSPEC Common Stock vote in favor
of, or consent to, the Merger or (ii) holders
of less than 10% of the outstanding shares of
INDSPEC Common Stock remain eligible for
appraisal rights under the Delaware General
Corporation Law (the "DGCL"). See "The Exchange
Offers -- Conditions to the Commencement of the
Exchange Offers."
Security Ownership of
Management and Affiliates..... As of , 1996, directors and
executive officers of INDSPEC and affiliates of
such persons had sole or shared voting power
with respect to 33,263 shares of INDSPEC Common
Stock, representing 71% of the INDSPEC Common
Stock outstanding. See "Principal INDSPEC
Stockholders."
Appraisal Rights.............. Stockholders who do not vote in favor of, or
who abstain from voting on, the Merger
Agreement and who comply with the provisions of
Section 262 of the DGCL have the right to be
paid in cash the "fair value" of their shares
of INDSPEC Common Stock. A copy of Section 262
is attached as Annex VII to this Proxy
Statement/Prospectus. A Stockholder
contemplating the exercise of the appraisal
rights provided by Section 262 should carefully
review that Section, including without
limitation the procedural steps required to
perfect those rights. A summary description of
those rights is provided under "Dissenting
Stockholders' Rights of Appraisal" below. A
Stockholder who fails to comply strictly with
the requirements under Section 262 will lose
his or her appraisal rights and will be
entitled only to the Merger Consideration for
the shares of INDSPEC Common Stock held by such
Stockholder. It is a condition to Occidental's
commencement of the Exchange Offers that either
(i) holders of at least 90% of the outstanding
shares of INDSPEC Common Stock vote in favor
of, or consent to, the Merger or (ii) holders
of less than 10% of the outstanding shares of
INDSPEC Common Stock remain eligible for
appraisal rights under the DGCL. Any
Stockholder who has demanded appraisal rights
will not be able to participate in the Exchange
Offers unless such appraisal rights have lapsed
or such demand has been withdrawn prior to the
expiration date of the Exchange Offers. See
"The Exchange Offers -- Conditions to the
Commencement of the Exchange Offers."
4
<PAGE> 14
THE MERGER
Effective Time................ The Merger will become effective on the date
and at the time (the "Effective Time") when a
certificate of merger (the "Certificate of
Merger") is filed with the Secretary of State
of the State of Delaware. The Certificate of
Merger will be executed and so filed as
promptly as practicable after the satisfaction
or waiver of the conditions set forth in the
Merger Agreement. See "The Merger -- Effective
Time."
Form of the Merger............ At the Effective Time, Roundtable will merge
with and into INDSPEC, with INDSPEC being the
surviving corporation. Pursuant to the Merger
Agreement, at the Effective Time, (i) each
outstanding share of INDSPEC Common Stock
(other than shares held by Roundtable or
Stockholders who have perfected appraisal
rights under Delaware law) will be converted
into one share of INDSPEC's new Class A Common
Stock, (ii) each outstanding share of
Roundtable Common Stock will be converted into
the right to receive one share of INDSPEC's new
Class B Common Stock, (iii) each share of
INDSPEC Common Stock held in the treasury of
INDSPEC will be converted into one share of
Class A Common Stock, (iv) each outstanding
share of INDSPEC Common Stock held by
Roundtable will be cancelled and retired and
(v) INDSPEC's certificate of incorporation and
bylaws will be amended and restated. See "The
Merger -- Form of the Merger."
Reasons for the Merger........ The Merger is the first of a series of
Transactions pursuant to which Occidental would
acquire a significant interest in INDSPEC. See
"The Transactions."
Management of INDSPEC after
the Merger.................... The officers and directors of INDSPEC
immediately prior to the Merger will remain the
officers and directors of INDSPEC immediately
after the Merger, except that Mr. Smith will
resign as a director. However, prior to the
Conversion Date (as defined below), the
Restated Certificate which will be effective
after the Merger will provide, among other
things, for two classes of directors -- one
class elected by the holders of the Class A
Common Stock ("Class A Directors") and one
class elected by the holders of the Class B
Common Stock ("Class B Directors"). Upon
consummation of the Merger, the Class A
Directors will be Messrs. Spinola, Danner and
Scorsone, and the Class B Directors will be
Messrs. Castle, Siegal and Dunphy. In addition,
prior to the Conversion Date, the Restated
Certificate and INDSPEC's amended and restated
bylaws (the "Restated Bylaws") will prohibit
the officers of INDSPEC from taking certain
specified actions without the approval of the
Board of Directors, and all matters submitted
to the Board of Directors for its approval will
require the vote of at least five of the six
directors. See "The Restated Certificate and
Restated Bylaws." Upon consummation of the
Exchange Offers, Occidental will be entitled to
elect all of the Class B Directors. See "The
Exchange Offers -- Management of INDSPEC After
the Exchange Offers."
5
<PAGE> 15
Conditions to the Merger...... In addition to the approval and adoption of the
Merger Agreement by the INDSPEC Stockholders,
the obligations of the parties to effect the
Merger are subject to the satisfaction or
waiver of certain conditions specified in the
Merger Agreement. The Merger will not be
consummated unless and until all conditions
have been satisfied or waived. See "The
Merger -- Conditions to the Merger," and "The
Merger -- Regulatory Approvals Required."
Rights to Terminate or Amend
the Merger Agreement.......... The Merger Agreement may be terminated on or
prior to the Effective Time by INDSPEC or
Roundtable only if the Exchange Agreement has
been terminated. See "The Merger Agreement --
Termination" and "The Exchange
Agreement -- Termination." Subject to
compliance with applicable law, the Merger
Agreement may be amended, at any time prior to
the Effective Time, by a written instrument
executed by Roundtable and INDSPEC, but only
with the consent of Occidental. See "The Merger
Agreement -- Amendment."
Regulatory Approvals.......... The Exchange Offers will be subject to certain
regulatory approvals, and the obtaining of such
approvals is a condition to the Merger. See
"The Exchange Offers -- Regulatory Approvals."
Occidental and INDSPEC do not believe that any
material Federal or state regulatory approvals
will be required in connection with the Merger.
See "The Merger -- Regulatory Approvals."
Certain Federal Income Tax
Consequences................ The Merger will be a tax-free reorganization
and no gain or loss will be recognized by
INDSPEC, Roundtable or their stockholders as a
consequence of the Merger. However, the
Exchange Offers will have tax consequences to
the stockholders. See "The Exchange
Offers -- Certain Federal Income Tax
Consequences."
THE RESTATED CERTIFICATE AND RESTATED BYLAWS
Class A Common Stock and
Class B Common Stock........ Except as provided in the Restated Certificate,
each share of Class A Common Stock and Class B
Common Stock will be identical in all respects
and will have equal powers, preferences, rights
and privileges. Holders of Class A Common Stock
and Class B Common Stock will vote together as
a single class, except as to those matters on
which separate class voting is required by the
Restated Certificate or by applicable law.
Prior to the Conversion Date (as defined
below), every holder of Class A Common Stock
will be entitled to 4.8 votes per share and
every holder of Class B Common Stock will be
entitled to one vote per share. From and after
the Conversion Date, every holder of Class A
Common Stock and Class B Common Stock will be
entitled to one vote per share. See "The
Restated Certificate and Restated
Bylaws -- Class A Common Stock and Class B
Common Stock."
Conversion of Class A Common
Stock Acquired by
Occidental.................. Prior to the Conversion Date, each share of
Class A Common Stock acquired by Occidental
will, without any action on the part of
Occidental, be automatically converted into one
share of Class B
6
<PAGE> 16
Common Stock. See "The Restated Certificate and
Restated Bylaws -- Conversion of Class A Common
Stock Acquired by Occidental."
Conversion Date............... The "Conversion Date" is the earliest to occur
of (i) the fifth anniversary of the first date
on which Occidental acquires 67% or more of the
total number of shares of INDSPEC Class A
Common Stock and Class B Common Stock
outstanding, determined on a fully diluted
basis, (ii) the consummation of the Put Offer
or the redemption of Class A Common Stock in
accordance with the Restated Certificate, (iii)
the first day after the closing date of the
Exchange Offers (the "Closing Date") on which
Occidental owns no shares of Class B Common
Stock and (iv) the termination of the Exchange
Agreement prior to the closing of the Exchange
Offers, unless the holders of a majority of the
Class B Common Stock otherwise agree in
writing. From and after the Conversion Date,
every holder of Class A Common Stock and Class
B Common Stock will be entitled to one vote per
share. See "The Restated Certificate and
Restated Bylaws -- Class A Common Stock and
Class B Common Stock."
Redemption of Class A
Common Stock................ The Class A Common Stock will be subject to
redemption for shares of Occidental Common
Stock (i) upon receipt of a written notice from
Occidental at any time on or after the fifth
anniversary of the Closing Date and on or
before the seventh anniversary of the Closing
Date (the "Notice Redemption") or (ii) if
Occidental acquires 67% or more of the total
number of shares of Class A Common Stock and
Class B Common Stock then outstanding
(determined on a fully diluted basis but
excluding any shares acquired pursuant to the
Put Offer), or if a number of shares of Class A
Common Stock have been tendered pursuant to the
Put Offer such that, upon the acquisition of
such shares, Occidental would own 67% or more
of the total number of shares of Class A Common
Stock and Class B Common Stock then outstanding
(determined on a fully diluted basis) (the
"Threshold Redemption"). See "The Restated
Certificate and Restated Bylaws -- Redemption
of Class A Common Stock."
Board of Directors............ Prior to the Conversion Date, the INDSPEC Board
of Directors will consist of six members, three
whom will be Class A Directors, and three of
whom will be Class B Directors. The Class A
Directors will be elected by the holders of the
Class A Common Stock, voting as a separate
class, and the Class B Directors will be
elected by the holders of the Class B Common
Stock, voting as a separate class. Under
certain circumstances, three additional
temporary directors may be appointed to resolve
certain matters. Prior to the Conversion Date,
all actions to be taken by the Board of
Directors require the affirmative vote of the
greater of (i) five directors or (ii) a
majority of the directors then in office, and
INDSPEC and its subsidiaries may not engage in
certain specified transactions without the
approval of the Board of Directors. See "The
Restated Certificate of Incorporation and
Restated Bylaws -- Board of Directors."
7
<PAGE> 17
THE EXCHANGE OFFERS
Terms of the Exchange
Offers........................ Upon consummation of the Merger and subject to
the satisfaction of certain other conditions,
the Exchange Agreement provides, among other
things, for Occidental to commence (i) an offer
to exchange shares of Occidental Common Stock
for up to 8,504 shares of Class A Common Stock
and (ii) an offer to exchange shares of
Occidental Common Stock for each outstanding
share of Class B Common Stock. The Exchange
Offers will be made by Occidental pursuant to a
separate prospectus and a letter of transmittal
which will be sent to all INDSPEC stockholders.
See "The Exchange Offers."
Exchange Offer
Consideration................. The number of shares of Occidental Common Stock
to be delivered in exchange for each share of
Class A Common Stock and Class B Common Stock
accepted in the Exchange Offers will be equal
to (i) the quotient obtained by dividing $131
million by the total number of shares of Class
A Common Stock and Class B Common Stock
outstanding or subject to issuance upon the
exercise of all outstanding warrants and vested
and unvested options, determined as of the
Closing Date, divided by (ii) the Occidental
Common Stock Value, which is the average of the
last reported sales prices of Occidental Common
Stock on the New York Stock Exchange on each of
the twenty consecutive trading days ending on
the fifth trading day prior to the Closing
Date. Cash will be paid by Occidental in lieu
of issuing any fractional shares of Occidental
Common Stock. If the Occidental Common Stock
Value is less than $15, Occidental will not be
required to consummate the Exchange Offers
unless INDSPEC elects to proceed based on a
deemed Occidental Common Stock Value of $15.
See "The Exchange Offers -- Conditions to the
Consummation of the Exchange Offers." Assuming
that (i) the 59,047 shares of INDSPEC Common
Stock outstanding or subject to issuance as of
February , 1996, remain the only shares
outstanding or subject to issuance, and (ii)
the Occidental Common Stock Value is equal to
the closing price of $ per share for
Occidental Common Stock on the New York Stock
Exchange on February , 1996, if the Closing
were to occur on February , 1996, each share
of Class A Common Stock and Class B Common
Stock accepted in the Exchange Offers would be
exchanged for shares of Occidental
Common Stock. See "The Exchange Offers -- Terms
of the Exchange Offers."
Additional Consideration...... On the Closing Date, Occidental will issue and
deliver to each holder of options to purchase
shares of Class A Common Stock (the "Retained
Options") or shares of Class A Common Stock
(the "Retained Stock" and, together with the
shares of Class A Common Stock for which any
Retained Options are exercisable, the "Retained
Securities") that are not acquired by
Occidental pursuant to the Exchange Offers,
whether or not tendered in the Exchange Offers,
that number of shares of Occidental Common
Stock determined by multiplying (i) the number
of Retained Securities held by such holder by
(ii) the quotient obtained by dividing (a) $3
million divided by the total number of Retained
8
<PAGE> 18
Securities held by all holders, by (b) the
Occidental Common Stock Value. Cash will be
paid by Occidental in lieu of issuing
fractional shares of Occidental Common Stock.
See "The Exchange Offers -- Additional
Consideration." Occidental has agreed to pay
the Additional Consideration to holders of
Retained Securities as compensation for the
redemption features of the Class A Common
Stock. The Federal income tax treatment of the
Additional Consideration is subject to
uncertainty. See "The Exchange
Offers -- Certain Federal Income Tax
Consequences."
Conditions to the Exchange
Offers........................ The commencement and Closing of the Exchange
Offers are both subject to the satisfaction or
waiver of certain conditions set forth in the
Exchange Agreement. See "The Exchange
Offers -- Conditions to the Commencement of the
Exchange Offers" and "The Exchange
Offers -- Conditions to the Consummation of the
Exchange Offers."
Expiration of the Exchange
Offers........................ The Exchange Offers will expire 20 business
days after their commencement, unless extended.
The Exchange Offers may be extended if certain
unscheduled events occur with respect to
INDSPEC's Petrolia, Pennsylvania production
facility or if INDSPEC elects to proceed with
the Exchange Offers based on a deemed
Occidental Common Stock Value of $15. See "The
Exchange Offers -- Terms of the Exchange
Offers."
Closing Date.................. Promptly following the expiration of the
Exchange Offers, but subject to certain
conditions, Occidental will effect the exchange
of shares of Occidental Common Stock for shares
of Class A Common Stock and Class B Common
Stock properly tendered and not withdrawn
pursuant to the Exchange Offers. Occidental
currently anticipates that the Closing will
occur on the third New York Stock Exchange
trading day following the expiration of the
Exchange Offers. See "The Exchange
Offers -- Terms of the Exchange Offers."
Regulatory Approvals
Required...................... The Exchange Offers are subject to the
completion of certain governmental filings and
the obtaining of certain governmental
approvals, including the requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), and the rules
and regulations thereunder, which provide that
certain transactions may not be consummated
until required information and materials have
been furnished to the Antitrust Division of the
Department of Justice (the "Antitrust
Division") and the Federal Trade Commission
(the "FTC") and certain waiting periods have
expired or been terminated. Occidental and
INDSPEC filed the required information and
materials with the Antitrust Division and the
FTC, and the waiting period expired on January
17, 1996. The Exchange Offers are also subject
to the Takeover Disclosure Law of the State of
Pennsylvania, pursuant to which Occidental has
filed a notice with the Pennsylvania Securities
Commission. See "The Exchange
Offers -- Regulatory Approvals Required."
9
<PAGE> 19
Management of INDSPEC After
the Exchange Offers......... Upon consummation of the Exchange Offers, it is
expected that INDSPEC's current officers will
remain in their current positions. Subsequent
to the Closing Date, it is expected that three
of INDSPEC's current directors (Messrs.
Spinola, Danner and Scorsone) will remain as
Class A Directors and the Class B Directors
will resign. Occidental, as the only holder of
Class B Common Stock, will then be entitled to
elect all of the Class B Directors. See "The
Exchange Offers -- Management of INDSPEC After
the Exchange Offers."
No Appraisal Rights........... No appraisal rights will be available to
INDSPEC stockholders in connection with the
Exchange Offers.
Certain Federal Income Tax
Consequences................ The receipt of Occidental Common Stock in
exchange for shares of Class A Common Stock or
Class B Common Stock pursuant to the Exchange
Offers will be a taxable transaction for
Federal income tax purposes. However, the
Federal income tax treatment of the Additional
Consideration is subject to uncertainty. See
"The Exchange Offers -- Certain Federal Income
Tax Consequences."
VOTING AGREEMENT.............. Pursuant to the Voting Agreement, (i)
Roundtable and certain other INDSPEC
Stockholders have agreed to vote their shares
of INDSPEC Common Stock (representing
approximately 68% of the shares outstanding as
of February , 1996) in favor of the adoption
and approval of the Merger Agreement and (ii)
certain INDSPEC Stockholders have agreed to
tender 1,886 shares of Class A Common Stock,
and the Roundtable stockholders have agreed to
tender their 29,496 shares of Class B Common
Stock, to Occidental in the Exchange Offers.
The vote of Roundtable and these other INDSPEC
Stockholders in accordance with the Voting
Agreement would be sufficient to approve the
Merger Agreement without any action on the part
of any other holder of INDSPEC Common Stock.
See "The Voting Agreement."
PUT OFFER..................... Subject to certain terms and conditions,
Occidental has agreed to commence the Put
Offer, pursuant to which it would exchange
shares of Occidental Common Stock for shares of
Class A Common Stock if INDSPEC's Net Debt (as
defined) is less than $80 million (or such
greater amount as may be determined after the
Closing Date by the Board of Directors).
Occidental has no obligation to commence the
Put Offer prior to the third anniversary of the
Closing Date. See "The Enabling
Agreement -- Put Offer."
TRADING MARKETS............... Occidental Common Stock is listed and
principally traded on the New York Stock
Exchange and the Pacific Stock Exchange under
the symbol "OXY." There is currently no trading
market for INDSPEC Common Stock and there is
not expected to be any trading market for the
Class A Common Stock or Class B Common Stock.
See "Comparative Market Prices and Dividends."
10
<PAGE> 20
RISK FACTORS
In deciding whether or not to vote for the Merger, Stockholders should
carefully consider the following factors, in addition to those discussed
elsewhere in this Proxy Statement/Prospectus.
ABSENCE OF PUBLIC MARKET
There is currently no public market for the INDSPEC Common Stock and there
is not expected to be a public market for the Class A Common Stock. The shares
of Class A Common Stock will be restricted securities under the Securities Act
and applicable state securities laws, and may not be resold unless they are
registered under the Securities Act and applicable state securities laws or
exemptions from such laws are available. INDSPEC has no obligation to register
such shares and INDSPEC has indicated that a public offering of such shares is
not contemplated. Consequently, INDSPEC stockholders' ability to dispose of
shares of Class A Common Stock will be limited.
CLASS A COMMON STOCK SUBJECT TO REDEMPTION
After the Exchange Offers have been completed, (i) Occidental may, under
certain circumstances be required to commence the Put Offer, pursuant to which
it would offer to exchange shares of Occidental Common Stock for Class A Common
Stock and (ii) the shares of Class A Common Stock may, under certain
circumstances, be redeemed for shares of Occidental Common Stock pursuant to a
Notice Redemption or a Threshold Redemption. However, there can be no assurance
as to when, if ever, any such exchange or redemption will occur. In the event of
the Put Offer or a Redemption, the value of shares of Occidental Common Stock to
be received by INDSPEC stockholders upon any such exchange or redemption will be
based on a formula specified in the Enabling Agreement (in the case of the Put
Offer) or the Restated Certificate (in the case of a Redemption) and, in each
case, will depend upon certain factors, including the following: (i) the
earnings before interest, taxes, depreciation and amortization ("EBITDA") of
INDSPEC for the 12 months immediately preceding the month in which such exchange
or redemption occurs; (ii) the amount of net debt and other liabilities of
INDSPEC as of the last day of the fiscal month immediately preceding the month
in which such exchange or redemption occurs; and (iii) the number of shares of
Class A Common Stock and Class B Common Stock outstanding or subject to issuance
upon the exercise of options and warrants. See "The Restated Certificate and
Restated Bylaws -- Redemption of Class A Common Stock" and "The Enabling
Agreement -- Put Offer."
The consideration that would be received by INDSPEC stockholders in the
event of the Put Offer or a Redemption may be greater or less, on a per share
basis, than that received by stockholders in the Exchange Offers, and such
difference could be material. In particular, INDSPEC's EBITDA for any future
period and the amount of INDSPEC's net debt and other liabilities as of any date
in the future are subject to significant risk and uncertainty and may increase
or decrease.
SUBSTANTIAL LEVERAGE OF INDSPEC
Following the Merger and the consummation of the transactions contemplated
by the Exchange Agreement, INDSPEC will continue to be highly leveraged. As of
December 31, 1995, INDSPEC's total indebtedness for borrowed money was $162.6
million. The degree to which INDSPEC is leveraged could have important
consequences to the holders of the Class A Common Stock, including: (i)
INDSPEC's leverage may make it more vulnerable to economic downturns and may
limit its ability to withstand competitive pressures; (ii) INDSPEC's ability to
obtain additional financing for working capital, capital expenditures,
acquisitions or other purposes may be impaired; and (iii) a substantial portion
of INDSPEC's cash flow from operations must be dedicated to the payment of
principal and interest on indebtedness.
OWNERSHIP BY OCCIDENTAL PRIOR TO THE CONVERSION DATE; CONTROL BY OCCIDENTAL
AFTER THE CONVERSION DATE
Assuming the Exchange Offers are fully subscribed, upon completion of the
Exchange Offers, the holders of the Class A Common Stock will own or have
options to acquire 21,047 shares of Class A Common Stock, representing
approximately 36% of INDSPEC's outstanding capital stock, on a fully diluted
basis, and Occidental will own approximately 38,000 shares of Class B Common
Stock, representing approximately 64% of INDSPEC's outstanding capital stock, on
a fully diluted basis. Until the Conversion Date occurs, Occidental will be
entitled to elect all Class B Directors. If the Conversion Date occurs,
Occidental will be able to elect all of INDSPEC's Board of Directors and will be
able to determine the outcome of matters submitted to a vote of INDSPEC's
stockholders.
11
<PAGE> 21
TAX TREATMENT OF ADDITIONAL CONSIDERATION
The Federal income tax consequences of the receipt of shares of Occidental
Common Stock by holders of Retained Stock as Additional Consideration is subject
to uncertainty, particularly with respect to both the timing of income
recognition and the character of the income. The legal authorities that are
potentially applicable to the treatment of the receipt of the Additional
Consideration do not address facts and circumstances sufficiently analogous to
those pertaining to the Additional Consideration to provide definitive guidance
regarding the most appropriate treatment of the receipt of the Additional
Consideration. Accordingly, it is not possible for counsel to render an opinion
regarding the tax treatment that will apply to the Additional Consideration.
There is a substantial risk that the Internal Revenue Service will contend that
the receipt of shares of Occidental Common Stock may be treated as a fee for
consenting to the Merger and thus would, upon receipt, be includible in income
as ordinary income in an amount equal to the sum of the fair market value of
such shares and any cash received in lieu of fractional shares. There may,
however, be alternative tax consequences of the receipt of shares of Occidental
Common Stock as Additional Consideration. Holders of Retained Stock should
consult their tax advisors regarding such alternative tax consequences,
including whether the receipt of such shares (i) would give rise to capital gain
rather than ordinary income even if the receipt is treated as a payment for
consent, (ii) would be treated as exchanged-for shares of Class A Common Stock,
and (iii) would not be currently includible in income but would be treated as
part of an open transaction that would close (i.e., be subject to tax) upon the
sale, disposition or redemption of such shares, or upon the lapse of
Occidental's rights pursuant to the Restated Certificate to effectuate, directly
or indirectly, a Redemption. See "The Exchange Offers -- Certain Federal Income
Tax Consequences."
12
<PAGE> 22
SELECTED HISTORICAL FINANCIAL INFORMATION OF OCCIDENTAL
(IN MILLIONS, EXCEPT RATIOS)
The following selected historical financial information of Occidental and
its consolidated subsidiaries should be read in conjunction with Occidental's
Consolidated Condensed Financial Statements for the nine months ended September
30, 1995 and 1994, which are included in Occidental's Quarterly Report on Form
10-Q for the quarterly period ended September 30, 1995, and Occidental's
Consolidated Financial Statements for the year ended December 31, 1994, which
are incorporated by reference in Occidental's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994, each of which reports is incorporated
herein by reference, and "Management's Discussion and Analysis" included in such
reports. The financial information for the years ended December 31, 1993, 1992,
1991 and 1990, reflects the coal business as a discontinued operation, and the
financial information for the year ended December 31, 1992 reflects the initial
adoption, effective as of January 1, 1992, of Statement of Financial Accounting
Standards (SFAS) No. 106 -- "Employers' Accounting for Postretirement Benefits
Other Than Pensions" and SFAS No. 109 -- "Accounting for Income Taxes." The
financial information for the years ended December 31, 1991 and 1990 also
reflects IBP, inc. ("IBP") as a discontinued operation. The information with
respect to the results of operations for the nine months ended, and the
financial position at, September 30, 1995 and 1994 is unaudited, but, in the
opinion of Occidental, reflects all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the consolidated results of
operations for, and the consolidated financial position at the end of, such
periods. The information with respect to the results of operations for the nine
months ended September 30, 1995 should not be regarded as necessarily indicative
of the results that may be expected for the entire year.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30 YEAR ENDED DECEMBER 31
------------------- --------------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
------- ------- ------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Revenues:
Net sales and operating revenues.... $ 7,950 $ 6,672 $ 9,236 $ 8,116 $ 8,494 $ 9,498 $10,837
Interest, dividends and other
income............................ 78 62 92 347 446 199 242
Gains on asset dispositions, net.... 44 16 15 54 215 1,177 74
Income from equity investments...... 87 48 73 27 22 10 27
------- ------- ------- ------- ------- ------- -------
8,159 6,798 9,416 8,544 9,177 10,884 11,180
------- ------- ------- ------- ------- ------- -------
Costs and other deductions:
Cost of sales....................... 5,945 5,563 7,550 6,809 7,185 7,704 8,645
Selling, general and administrative
and other operating expenses...... 839 677 1,044 818 877 823 1,106
Restructuring charges............... -- -- -- -- -- 260 1,069
Environmental remediation charges... -- -- 4 18 42 149 713
Exploration expense................. 63 71 127 102 112 115 130
Interest and debt expense, net...... 436 434 584 580 640 864 898
Provision for domestic and foreign
income and other taxes............ 372 89 143 143 195 597 38
------- ------- ------- ------- ------- ------- -------
7,655 6,834 9,452 8,470 9,051 10,512 12,599
------- ------- ------- ------- ------- ------- -------
Income (loss) from continuing
operations.......................... 504 (36) (36) 74 126 372 (1,419)
Discontinued operations, net.......... -- -- -- 221 (622) (55) (275)
Extraordinary gain (loss), net (1).... -- -- -- (12) (2) 143 (1)
Cumulative effect of changes in
accounting principles, net (2)...... -- -- -- -- (93) -- --
------- ------- ------- ------- ------- ------- -------
Net income (loss)..................... 504(3) (36)(4) (36)(4) 283(5) (591)(6) 460(7) (1,695)(8)
Preferred dividend requirements....... (70) (56) (76) (39) (3) (7) (7)
------- ------- ------- ------- ------- ------- -------
Earnings (loss) applicable to common
stock............................... $ 434 $ (92) $ (112) $ 244 $ (594) $ 453 $(1,702)
======= ======= ======= ======= ======= ======= =======
Depreciation, depletion and
amortization expense................ $ 708 $ 660 $ 882 $ 892 $ 872 $ 793 $ 927
======= ======= ======= ======= ======= ======= =======
Common stock dividends................ $ 238 $ 233 $ 311 $ 305 $ 302 $ 299 $ 737
======= ======= ======= ======= ======= ======= =======
Ratio of earnings to fixed charges
(9)................................. 2.54 N/A(10) N/A(10) 1.41 1.30 1.70 N/A(10)
FINANCIAL POSITION (AT END OF PERIOD):
Total assets.......................... $17,446 $17,295 $17,989 $17,123 $17,877 $15,763 $18,202
Senior funded debt, net............... 5,271 5,682 5,823 5,728 5,452 5,478 6,033
Subordinated debt, net................ -- -- -- -- -- -- 1,324
Capital lease liabilities, net........ 269 298 291 319 354 379 60
Preferred stock, common stock and
other stockholders' equity.......... 4,699 4,307 4,457 3,958 3,440 4,340 4,114
</TABLE>
13
<PAGE> 23
- ---------------
(1) The total year 1993, 1992 and 1990 extraordinary losses each resulted from
the early extinguishment of debt. The total year 1991 net extraordinary
gain included a gain of $252 million from the income tax benefit arising
from the application of net operating and capital loss carryforwards,
partially offset by losses of $109 million resulting from the early
extinguishment of debt.
(2) During the fourth quarter of 1992, Occidental adopted SFAS No. 106 and No.
109, effective as of January 1, 1992. The cumulative effect of these
accounting changes on prior years was a net charge of $93 million, which
consisted of a $513 million charge resulting from the adoption of SFAS No.
106 and a $420 million benefit resulting from the adoption of SFAS No. 109.
(3) The 1995 results included pretax charges of $109 million for settlement of
litigation.
(4) The total year 1994 results included pretax charges of $148 million for
environmental and litigation matters and plant closure. Included in these
charges for the nine months ended September 30 was $18 million for a plant
closure reserve.
(5) The total year 1993 results included after-tax benefits of $85 million
resulting from a reversal of foreign tax reserves following the settlement
of tax matters with foreign jurisdictions relating to the disposition of
certain international oil and gas assets in 1991 and the net benefit of a
$154 million reduction in contract impairment reserve at MidCon Corp. The
total year results also included an after-tax benefit of $221 million,
reported as discontinued operations, for the reversal of reserves no longer
required and for recognizing the effect of the sale of the coal business.
(6) The total year 1992 results included a $622 million after-tax charge and
loss from operations related to the discontinued coal operation and a $93
million net charge for changes in accounting principles. These charges were
partially offset by pretax gains of $75 million from the receipt of a
contingent payment related to the 1985 sale of a subsidiary that owned one
half of Occidental's Colombian operations and $128 million from a sale of
12 million Common Shares of Canadian Occidental Petroleum Ltd. The total
year results also included the net benefit of a $209 million reduction in
the contract impairment reserve at MidCon Corp.
(7) The total year 1991 results included net gains of $642 million from major
asset sales, which included Occidental's sale of the U.K. North Sea
interest and the disposition of IBP, partially offset by charges of $466
million for asset value adjustments, environmental remediation, severance
costs and accelerated amortization of original issue discount on a portion
of debt subsequently retired.
(8) In the fourth quarter of 1990, Occidental recorded charges of $2.169
billion, which included charges for restructuring of $1.369 billion, of
which $300 million is reflected in discontinued operations, environmental
remediation charges of $620 million, asset impairment write-offs of $150
million and other charges of $30 million, as part of a restructuring
program announced in January 1991.
(9) Earnings are based on Occidental's consolidated income from continuing
operations, before taxes on income (other than foreign oil and gas taxes)
and before fixed charges. Combined fixed charges consist of interest and
debt expense, including the proportionate share of interest and debt
expense of 50 percent-owned unconsolidated companies, the portion of lease
rentals representative of the interest factor, preferred dividends to
minority stockholders of subsidiaries adjusted to a pretax basis.
(10) For the nine months ended September 30, 1994 and the years ended December
31, 1994 and 1990, earnings were inadequate to cover combined fixed charges
by $19 million, $1 million and $1.547 billion, respectively.
14
<PAGE> 24
COMPARATIVE PER SHARE DATA
Set forth below are historical net income per share, book value per share
and dividend per share data of Occidental and INDSPEC. The information presented
in the table should be read in conjunction with the separate historical
financial statements of Occidental and INDSPEC and the notes thereto appearing
elsewhere herein or incorporated herein by reference.
OCCIDENTAL PETROLEUM CORPORATION
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
<S> <C> <C>
Primary earnings (loss) per share of common stock.............. $ 1.37 $(0.36)
Book value per common share.................................... $ 10.60 $ 9.88
Dividends per common share..................................... $ 0.75 $ 1.00
</TABLE>
INDSPEC HOLDING CORPORATION
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
DECEMBER 31, MARCH 31,
1995 1995
------------- ----------
<S> <C> <C>
Net income per share of common stock............................ $ 92.17 $ 79.61
Book value per common share..................................... $305.20 $ 212.94
Dividends per common share...................................... $ 0.00 $ 0.00
</TABLE>
15
<PAGE> 25
COMPARATIVE MARKET PRICES AND DIVIDENDS
OCCIDENTAL
Occidental Common Stock is listed and principally traded on the New York
Stock Exchange and the Pacific Stock Exchange under the symbol "OXY."
The following table sets forth the high and low sales prices of Occidental
Common Stock, and cash dividends declared thereon, for the periods indicated.
The quotations are as reported in published financial sources.
<TABLE>
<CAPTION>
HIGH LOW DIVIDEND
---- --- --------
<S> <C> <C> <C>
Calendar Quarters -- 1994
First Quarter.......................................... 19 1/8 16 1/8 .25
Second Quarter......................................... 20 15 1/8 .25
Third Quarter.......................................... 22 3/8 18 3/4 .25
Fourth Quarter......................................... 22 18 3/8 .25
Calendar Quarters -- 1995
First Quarter.......................................... 22 18 .25
Second Quarter......................................... 24 3/8 21 1/4 .25
Third Quarter.......................................... 23 7/8 21 1/8 .25
Fourth Quarter......................................... 23 1/2 20 1/8 .25
Calendar Quarters -- 1996
First Quarter (through February , 1996)..............
</TABLE>
On February , 1996, the closing price per share of Occidental Common
Stock on the New York Stock Exchange was $ .
INDSPEC
There is currently no trading market for INDSPEC Common Stock and no
dividends have ever been paid. INDSPEC's senior credit facility with Bankers
Trust Company, as Agent (the "Senior Credit Facility") and Indenture with United
States Trust Company, as Trustee, with respect to INDSPEC Chemical Corporation's
11 1/2% Senior Subordinated Discount Notes due 2003 (the "Indenture") currently
restrict INDSPEC's ability to pay dividends.
16
<PAGE> 26
THE COMPANIES
INDSPEC
INDSPEC Holding Corporation is a Delaware corporation. INDSPEC Chemical
Corporation ("Chemical") is the wholly owned operating subsidiary of INDSPEC.
INDSPEC believes that it is the largest producer of resorcinol in the world and
the sole commercial producer of resorcinol in the United States. Resorcinol is a
chemical used primarily as a bonding and stiffening agent in the manufacture of
tires and tread rubber. In addition, resorcinol is used in the manufacture of
high performance wood adhesives, ultraviolet light stabilizers, sunscreens,
dyestuffs, pharmaceuticals, agrichemicals, carbonless paper and fire retardant
plastic additives. See "Business of INDSPEC." INDSPEC's principal executive
offices are located at 411 Seventh Avenue, Pittsburgh, Pennsylvania 15219
(telephone (412) 765-1200).
ROUNDTABLE
Roundtable was organized under the laws of the State of Delaware by CHPII
and certain other Stockholders solely for the purpose of engaging in the Merger.
Roundtable has engaged in no business activity and has no assets or liabilities
other than (i) the 29,496 shares of Common Stock contributed to it by CHPII and
such other Stockholders and (ii) its rights and obligations under the Merger
Agreement and the Voting Agreement. Roundtable's offices are located at 150 East
58th Street, New York, New York 10155 (telephone (212) 644-8600).
OCCIDENTAL
Occidental explores for, develops, produces and markets crude oil and
natural gas; engages in interstate and intrastate natural gas transmission and
marketing; and manufactures and markets a variety of basic chemicals,
petrochemicals and polymers and plastics. Occidental conducts its principal
operations through three subsidiaries: Occidental Oil and Gas Corporation,
MidCon Corp. and Occidental Chemical Corporation. Occidental's principal
executive offices are located at 10889 Wilshire Boulevard, Los Angeles,
California 90024 (telephone (310) 208-8800).
THE TRANSACTIONS
On November 10, 1995, INDSPEC and Occidental entered into the Exchange
Agreement which contemplates a series of transactions pursuant to which
Occidental would acquire a significant interest in INDSPEC and arrange for the
possible acquisition, under certain circumstances, of the interests in INDSPEC
not initially acquired by Occidental in the Exchange Offers. Occidental believes
that its investment in INDSPEC will provide it with holdings in a specialty
chemical business that is complementary to Occidental's existing chemical
businesses. The Transactions include (i) the Merger of Roundtable with and into
INDSPEC and (ii) the Exchange Offers, pursuant to which Occidental will exchange
shares of Occidental Common Stock for shares of Class A Common Stock and Class B
Common Stock. After the Exchange Offers have been completed, (i) Occidental may,
under certain circumstances, be required to commence the Put Offer, pursuant to
which it would offer to exchange all outstanding shares of Class A Common Stock
for shares of Occidental Common Stock, and (ii) the shares of Class A Common
Stock may, under certain circumstances, be subject to redemption for shares of
Occidental Common Stock. Occidental and INDSPEC structured the Transactions to
satisfy the following objectives: (i) to facilitate the acquisition by
Occidental of substantially all of the INDSPEC Common Stock owned by
non-management and non-employee Stockholders (primarily CHPII and certain
persons associated with CHPII), (ii) to provide some immediate liquidity to
INDSPEC's management and employee Stockholders through the Exchange Offers, and
(iii) to provide incentives for INDSPEC's management and employee Stockholders
to improve INDSPEC's financial performance and reduce its indebtedness through
the timing, pricing and other terms and conditions of the Put Offer and the
redemption provisions applicable to the Class A Common Stock.
17
<PAGE> 27
THE MERGER
The first step in the Transactions is the Merger of Roundtable with and
into INDSPEC, with INDSPEC as the surviving corporation. Upon consummation of
the Merger:
(i) each outstanding share of INDSPEC Common Stock (other than shares held
by Roundtable or Stockholders who have perfected appraisal rights
under the DGCL) will be converted into one share of INDSPEC's new
Class A Common Stock;
(ii) each outstanding share of Roundtable Common Stock will be converted
into the right to receive one share of INDSPEC's new Class B Common
Stock;
(iii) each share of INDSPEC Common Stock held in the treasury of INDSPEC
will be converted into one share of Class A Common Stock;
(iv) each outstanding share of INDSPEC Common Stock held by Roundtable will
be cancelled and retired; and
(v) INDSPEC's certificate of incorporation and bylaws will be amended and
restated.
INDSPEC's Restated Certificate will provide, among other things, that (i)
prior to the Conversion Date, each share of Class A Common Stock will entitle
the holder thereof to 4.8 votes per share and each share of Class B Common Stock
will entitle the holder thereof to one vote per share, (ii) holders of Class A
Common Stock and holders of Class B Common Stock will elect separate classes of
directors, and (iii) under certain circumstances, the Class A Common Stock will
be subject to redemption for shares of Occidental Common Stock. From and after
the Conversion Date, the holders of both Class A Common Stock and Class B Common
Stock will be entitled to one vote per share. See "The Restated Certificate and
Restated Bylaws."
THE EXCHANGE OFFERS
The second step in the Transactions is the Exchange Offers. Pursuant to the
terms and subject to the conditions set forth in the Exchange Agreement, not
later than one business day after the Effective Date, Occidental will commence
(i) an offer to exchange Occidental Common Stock for up to 8,504 shares of Class
A Common Stock and (ii) an offer to exchange Occidental Common Stock for each
outstanding share of Class B Common Stock. The Exchange Offers will be made by
Occidental pursuant to a separate prospectus and a letter of transmittal which
will be sent to all INDSPEC stockholders.
The number of shares of Occidental Common Stock to be delivered in exchange
for each share of Class A Common Stock and Class B Common Stock accepted in the
Exchange Offers will be equal to (i) the quotient obtained by dividing $131
million by the total number of shares of Class A Common Stock and Class B Common
Stock outstanding or subject to issuance upon the exercise of outstanding
warrants and options, determined as of the Closing Date, divided by (ii) the
Occidental Common Stock Value. If certain events with respect to the Occidental
Common Stock (including a dividend or recapitalization) occur during the twenty
consecutive trading days during which the Occidental Common Stock Value is
determined, then the Occidental Common Stock Value will be adjusted
appropriately in a manner to be determined by Occidental and consented to by
INDSPEC. Cash will be paid by Occidental in lieu of issuing any fractional
shares of Occidental Common Stock. If the Occidental Common Stock Value is less
than $15, Occidental will not be required to consummate the Exchange Offers
unless INDSPEC elects to proceed based on a deemed Occidental Common Stock Value
of $15.
Assuming that (i) the 59,047 shares of INDSPEC Common Stock outstanding or
subject to issuance as of February , 1996, remain the only shares outstanding
or subject to issuance, and (ii) the Occidental Common Stock Value is equal to
the closing price of $ per share for Occidental Common Stock on the New
York Stock Exchange on February , 1996, if the Closing were to occur on
February , 1996, each share of Class A Common Stock and Class B Common Stock
accepted in the Exchange Offers would be exchanged for shares of
Occidental Common Stock.
18
<PAGE> 28
In addition, upon the closing of the Exchange Offers, Occidental will issue
and deliver to each holder of Retained Options and to each holder of shares of
Retained Stock, that number of shares of Occidental Common Stock determined by
multiplying (i) the number of Retained Securities held by such holder, by (ii)
the quotient obtained by dividing (a) $3 million divided by the total number of
Retained Securities held by all holders, by (b) the Occidental Common Stock
Value. Cash will be paid by Occidental in lieu of issuing fractional shares of
Occidental Common Stock. Occidental has agreed to pay the Additional
Consideration to holders of Retained Securities as compensation for the
redemption features of the Class A Common Stock. The Federal income tax
treatment of the Additional Consideration is subject to uncertainty. See "The
Exchange Offers -- Certain Federal Income Tax Consequences."
Upon consummation of the Exchange Offers, Occidental will own up to 38,000
shares of Class B Common Stock (including up to 8,504 shares of Class B Common
Stock which will have been converted from Class A Common Stock in accordance
with the Restated Certificate), representing approximately 64% of all INDSPEC
shares outstanding, determined on a fully diluted basis, and 45% of the voting
power of all INDSPEC shares outstanding.
THE PUT OFFER; REDEMPTION OF CLASS A COMMON STOCK
After the Exchange Offers have been completed, (i) Occidental may, under
certain circumstances, be required to commence the Put Offer, pursuant to which
it would exchange shares of Occidental Common Stock for shares of Class A Common
Stock and (ii) the shares of Class A Common Stock may, under certain
circumstances, be redeemed for shares of Occidental Common Stock.
Occidental is not obligated to commence the Put Offer until three years
after the Closing Date, and only if certain conditions are satisfied, including
INDSPEC's Net Debt (as defined) having been reduced to less than $80 million (or
such greater amount as may be determined after the Closing Date by the Board of
Directors). Occidental may terminate the Put Offer upon the occurrence of a
Threshold Redemption. See "The Enabling Agreement -- Put Offer."
The Class A Common Stock will be subject to redemption for shares of
Occidental Common Stock (i) pursuant to a Notice Redemption, upon INDSPEC's
receipt of a written notice from Occidental at any time on or after the fifth
anniversary of the Closing Date and on or before the seventh anniversary of the
Closing Date or (ii) pursuant to a Threshold Redemption, if Occidental acquires
67% or more of the total number of shares of Class A Common Stock and Class B
Common Stock then outstanding (determined on a fully diluted basis but excluding
any shares acquired pursuant to the Put Offer), or if a number of shares of
Class A Common Stock have been tendered pursuant to the Put Offer such that,
upon the acquisition of such shares, Occidental would own 67% or more of the
total number of shares of Class A Common Stock and Class B Common Stock then
outstanding (determined on a fully diluted basis). See "The Restated Certificate
and Restated Bylaws -- Redemption of Class A Common Stock."
In the event of a Put Offer, a Notice Redemption or a Threshold Redemption,
the number of shares of Occidental Common Stock to be received by INDSPEC
stockholders upon any such exchange or redemption will be based on a formula
specified in the Enabling Agreement (in the case of the Put Offer) or the
Restated Certificate (in the case of a redemption) and, in each case, will
depend upon certain factors, including the following: (i) the EBITDA of INDSPEC
for the 12 months immediately preceding the month in which such exchange or
redemption occurs; (ii) the amount of net debt and other liabilities of INDSPEC
as of the last day of the fiscal month immediately preceding the month in which
such exchange or redemption occurs; (iii) the average of the last reported sales
prices of Occidental Common Stock on the New York Stock Exchange on each of the
twenty consecutive trading days ending on the fifth trading day prior to such
exchange or redemption; and (iv) the number of shares of Class A Common Stock
and Class B Common Stock outstanding or subject to issuance upon the exercise of
options and warrants. See "The Restated Certificate and Restated Bylaws --
Redemption of Class A Common Stock" and "The Enabling Agreement -- Put Offer."
The formulae used to determine the number of shares of Occidental Common
Stock that would be received in the event of the Put Offer, the Notice
Redemption and the Threshold Redemption are similar.
19
<PAGE> 29
However, the formula used in the event of a Notice Redemption reduces INDSPEC's
EBITDA by 5% compared to that used in the event of a Threshold Redemption or Put
Offer. As a result, assuming the calculations of the number of shares of
Occidental Common Stock for each of a Put Offer, Notice Redemption and Threshold
Redemption were based upon the INDSPEC financial results and position as of the
same date and for the same period, the number of shares of Occidental Common
Stock received in a Notice Redemption would be less than would be received in a
Threshold Redemption or Put Offer. This difference in the formulae is intended
to provide incentives for INDSPEC's employee and management stockholders to
reduce INDSPEC's Net Debt.
CERTAIN ASPECTS OF THE TRANSACTIONS
In connection with the Exchange Offers, Occidental will acquire up to
38,000 shares of Class B Common Stock (including up to 8,504 shares that will
have been automatically converted from Class A Common Stock pursuant to the
INDSPEC Certificate) in exchange for up to 5,620,381 shares of Occidental Common
Stock (the actual number of shares to be based on the Occidental Common Stock
Value). If the Exchange Offers are fully subscribed, Occidental will acquire
approximately 64% of all INDSPEC shares outstanding, determined on a fully
diluted basis, and 45% of the voting power of all INDSPEC shares outstanding. As
the only holder of Class B Common Stock, Occidental will be entitled to elect
all three of INDSPEC's Class B Directors, but none of the three Class A
Directors. Prior to the Conversion Date (as defined in the INDSPEC Certificate),
all actions to be taken by INDSPEC's Board of Directors will generally require
the vote of at least five directors. See "The Restated Certificate and Restated
Bylaws -- Board of Directors." Under certain circumstances, (i) the INDSPEC
Certificate will enable Occidental to cause a Redemption of the outstanding
Class A Common Stock and (ii) the Enabling Agreement will obligate Occidental to
commence the Put Offer. See "The Enabling Agreement -- Put Offer."
All of the shares of Class B Common Stock properly tendered in the Exchange
Offers will be exchanged for Occidental Common Stock. Upon completion of the
Exchange Offers, CHPII will no longer own any shares of INDSPEC Common Stock
and, therefore, will not participate in any increase or decrease in value of
INDSPEC Common Stock that may be realized in the future. The other holders of
Class B Common Stock will continue to own INDSPEC Common Stock only to the
extent that such persons also own shares of Class A Common Stock. See "Principal
INDSPEC Stockholders." These stockholders will receive the same consideration in
the Transactions with respect to their shares of Class A Common Stock as persons
who are not associated with CHPII.
Holders of Class A Common Stock, including all INDSPEC stockholders who are
not associated with CHPII, will only be entitled to exchange, in the aggregate,
up to 8,504 shares of Class A Common Stock, representing approximately 33% of
the shares outstanding, determined on a fully diluted basis, in the Exchange
Offers. See "Interests of Certain Persons in the Transactions -- Receipt of
Different Classes of Stock; Treatment in the Exchange Offers." In addition to
the shares of Occidental Common Stock received in exchange for shares of INDSPEC
Common Stock, INDSPEC securityholders remaining after the Exchange Offers have
been completed will receive, as Additional Consideration, up to an aggregate of
200,000 shares of Occidental Common Stock (the actual number of shares to be
based on the Occidental Common Stock Value). Shares of Class A Common Stock that
remain outstanding after the Exchange Offers have been completed will, under
certain circumstances, be subject to Redemption in exchange for Occidental
Common Stock, and eligible for exchange, at the option of the holder, for shares
of Occidental Common Stock if Occidental commences the Put Offer. The
consideration that would be received by INDSPEC stockholders in the event of a
Redemption or the Put Offer may be greater or less, on a per share basis, than
that received by INDSPEC stockholders in the Exchange Offers.
In connection with the Transactions, certain officers of INDSPEC will enter
into new employment agreements, intended to provide incentives for such officers
to remain with INDSPEC through December 31, 2000 or the Conversion Date (if
earlier). See "Interests of Certain Persons in the Transactions -- Employment
Agreements" and "Management of INDSPEC -- Employment and other Agreements."
Except for such employment arrangements, INDSPEC officers will be treated the
same in the Transactions as other INDSPEC stockholders who are not associated
with CHPII.
20
<PAGE> 30
REASONS FOR THE TRANSACTIONS; RECOMMENDATION OF THE BOARD OF DIRECTORS
The INDSPEC Board of Directors has approved the Exchange Agreement, the
Merger Agreement and the Enabling Agreement and the transactions contemplated
thereby as being in the best interests of the Stockholders. In light of the
foregoing, the INDSPEC Board of Directors unanimously recommends that the
Stockholders vote FOR approval and adoption of the Merger Agreement.
BACKGROUND. In early 1995, INDSPEC requested that three investment banking
firms make presentations to INDSPEC in connection with an engagement to act as
INDSPEC's financial advisor in a proposed sale of, or business combination
involving, INDSPEC. In its presentation, each investment bank also considered
the possibility of an initial public offering ("IPO") including a small
secondary offering. In each case, the investment banks advised INDSPEC that
valuations for a company like INDSPEC were higher in a sale of the company than
they would be with an IPO.
After reviewing the presentations, on March 28, 1995, INDSPEC entered into
an engagement letter (the "Morgan Stanley Engagement") with Morgan Stanley,
engaging Morgan Stanley to act as INDSPEC's financial advisor. The INDSPEC Board
of Directors selected Morgan Stanley primarily because of its expertise in
transactions of this kind and its familiarity with the industry in which INDSPEC
operates. INDSPEC also engaged Castle Harlan to provide certain financial advice
and assistance of an investment banking nature.
Morgan Stanley, on behalf of INDSPEC, conducted a sale process in which a
number of possible buyers were identified and contacted. Morgan Stanley provided
further information regarding INDSPEC to those possible buyers which expressed
interest in a possible transaction with INDSPEC. On August 15, 1995, Occidental
delivered a proposal to INDSPEC with respect to the negotiation of a business
combination involving INDSPEC and Occidental. Over the next two months,
Occidental conducted due diligence, and the parties negotiated the terms of the
proposed transaction.
On November 2, 1995, the INDSPEC Board of Directors met and reviewed the
terms of the proposed transaction between INDSPEC and Occidental. On November
10, 1995, the INDSPEC Board of Directors met again to consider approval of the
Transactions. The INDSPEC Board of Directors, after considering the matters
discussed below, concluded that the Transactions are fair to the INDSPEC
Stockholders; approved execution and delivery of the Exchange Agreement, the
Merger Agreement and related documents; and recommended that INDSPEC
Stockholders approve the Merger Agreement.
FAIRNESS OF THE TRANSACTIONS. The INDSPEC Board of Directors considered the
following factors in reaching the conclusion that the Transactions are fair to
the INDSPEC Stockholders:
1. Purchase Price. There is no public market for the INDSPEC Common Stock,
nor will there be any public market for the Class A Common Stock or the Class B
Common Stock to be issued in the Merger. As a result, there are no current or
historical market prices against which to compare the consideration to be
offered by Occidental in the Exchange Offers (the "Exchange Consideration"). The
only independent indications of the value of the Class A Common Stock and the
Class B Common Stock available to the INDSPEC Board of Directors are the opinion
of Morgan Stanley discussed below and an appraisal of the fair market value of
the INDSPEC Common Stock performed in connection with administration of the
ESOP. The ESOP appraisal valued the INDSPEC Common Stock held by the ESOP as of
December 31, 1994 at $950 per share. The ESOP appraisal reflected a ten percent
discount to compensate for the lack of a public trading market and also
reflected the presence of a special "put" option for stock held by the ESOP.
The INDSPEC Board of Directors reviewed materials prepared by Morgan
Stanley (i) comparing financial information about INDSPEC with the financial and
trading performance of certain comparable publicly traded companies and their
securities, (ii) describing the financial terms, to the extent publicly
available, of certain comparable acquisition transactions and (iii) comparing
preliminary indications of interest received from other potential purchasers
with the Exchange Consideration offered by Occidental. The INDSPEC Board of
Directors concluded that transactions involving specialty chemical companies
having a relatively small capitalization were the most appropriate comparison
and that the Exchange Consideration considered as a multiple of earnings before
interest, taxes, depreciation and amortization was comparable with
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that achieved in such transactions and exceeded that proposed in the other
preliminary indications of interest received by INDSPEC in its search for an
appropriate business combination.
In addition, the other proposals received by INDSPEC either provided for a
lesser amount of consideration per share or contained contingencies making the
probability of the eventual consummation of a transaction difficult to predict.
One of the proposals would have required INDSPEC to incur sizeable additional
debt levels, which would have added an additional ongoing business risk for
INDSPEC and its employees and any continuing stockholders.
2. Liquidity. There will be no public market for the Class A Common Stock
or the Class B Common Stock. The Occidental Common Stock offered as Exchange
Consideration is traded on a number of exchanges, including the New York Stock
Exchange. Thus, holders of Class B Common Stock will have the opportunity to
receive a publicly traded security in exchange for all of their Class B Common
Stock, while holders of Class A Common Stock will have the opportunity to
receive a publicly traded security in exchange for approximately 33% of the
Class A Common Stock, determined on a fully diluted basis (excluding shares of
Class A Common Stock that certain stockholders have agreed not to tender in the
Exchange Offers). The Put Offer that may be made by Occidental offers a
possibility of future liquidity for the Class A Common Stock not exchanged in
the Exchange Offers which is not enjoyed by current INDSPEC Stockholders. See
"The Enabling Agreement -- Put Offer."
3. Treatment of Holders of Class A Common Stock. The INDSPEC Board of
Directors considered the following as the primary objectives of INDSPEC and
Occidental in the structuring of the Transactions: (i) to facilitate the
acquisition by Occidental of substantially all of the INDSPEC Common Stock owned
by non-management and non-employee Stockholders (primarily CHPII and certain
persons associated with CHPII), (ii) to provide some immediate liquidity to
INDSPEC's management and employee Stockholders through the Exchange Offers and
(iii) to provide incentives for INDSPEC's management and employee Stockholders
to improve INDSPEC's financial performance and reduce its indebtedness through
the timing, pricing and other terms and conditions of the Put Offer and the
redemption provisions applicable to the Class A Common Stock. As a result, the
Class A Common Stock and Class B Common Stock will be the subject of different
Exchange Offers and will have different rights following consummation of the
Exchange Offers.
The Exchange Offer for the Class A Common Stock will provide for the
exchange of approximately 33% of the Class A Common Stock, determined on a fully
diluted basis (excluding shares of Class A Common Stock that certain
stockholders have agreed not to tender in the Exchange Offers), while the
Exchange Offer for the Class B Common Stock (to be held primarily by CHPII and
persons associated with CHPII) will provide for the exchange of all of the Class
B Common Stock. The Exchange Consideration to be paid per share for the Class A
Common Stock and the Class B Common Stock will be the same. The INDSPEC Board of
Directors considered that holders of Class A Common Stock, while they will not
achieve immediate liquidity for all of their securities, may have the
opportunity to sell their Class A Common Stock in a future Put Offer that
Occidental may be required to make upon the satisfaction of certain conditions.
In the Put Offer, the consideration to be paid would be based upon INDSPEC's
future earnings and debt. Although there can be no assurance that the conditions
precedent to the requirement that Occidental make a Put Offer will be achieved
or as to the value of exchange consideration if a Put Offer were to occur, the
INDSPEC Board of Directors believes that the opportunity exists for holders of
Class A Common Stock to realize any appreciation in the value of their Class A
Common Stock based on INDSPEC's future performance. See "The Enabling
Agreement -- Put Offer."
Furthermore, the INDSPEC Board of Directors noted that holders of shares of
Class A Common Stock and options to purchase Class A Common Stock which are not
exchanged will receive a pro rata share of $3 million of Occidental Common Stock
at the Closing of the Exchange Offers. See "The Exchange Agreement -- Additional
Consideration." The Occidental Common Stock to be received pursuant to the
Exchange Offers and the Additional Consideration, and the Put Offer and the
Redemption, are referred to herein, in the aggregate, as the "Transaction
Consideration."
The Restated Certificate and Restated Bylaws which will take effect at the
Effective Time of the Merger provide, among other things, that, prior to the
Conversion Date, (i) the holders of Class A Common Stock
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will have the right to elect all three Class A Directors, and the holders of
Class B Common Stock will have the right to elect all three Class B Directors,
(ii) the vote of at least five directors will be required to approve actions by
the INDSPEC Board of Directors and (iii) every holder of Class A Common Stock
will be entitled to 4.8 votes per share, and every holder of Class B Common
Stock will be entitled to one vote per share, on all matters brought before the
stockholders (except as to those matters on which separate class voting is
required by the Restated Certificate (including the election of directors) and
matters requiring a class vote under applicable law). See "The Restated
Certificate and Restated Bylaws -- Board of Directors." As a result, the INDSPEC
Board of Directors noted that, although Occidental will hold approximately 64%
of the fully diluted equity interests in INDSPEC following consummation of the
Exchange Offers, Occidental will not have the ability, prior to the Conversion
Date, to direct actions to be taken by INDSPEC without the approval of directors
elected by the holders of Class A Common Stock, in the case of matters brought
before the INDSPEC Board of Directors, or the approval of some holders of Class
A Common Stock, in the case of matters brought before the Stockholders.
4. Opinion of Morgan Stanley. The INDSPEC Board of Directors considered the
opinion of Morgan Stanley and Morgan Stanley's presentation with regard to
financial and other matters which it deemed relevant and the methods of
valuation used. See "Opinion of Morgan Stanley" below.
The INDSPEC Board of Directors considered each of the foregoing factors as
favorable to its conclusion and, based thereon, concluded that the Merger and
the Exchange Offers are fair to the Stockholders. The INDSPEC Board of Directors
did not find it practicable to, and did not, quantify or otherwise assign
relative weights to, the individual factors considered in reaching its
conclusion. However, the INDSPEC Board of Directors gave significant weight to
all the factors discussed above.
OPINION OF MORGAN STANLEY
INDSPEC engaged Morgan Stanley to act as its financial advisor in
connection with the Merger. The INDSPEC Board of Directors requested that Morgan
Stanley render an opinion to the Board of Directors as to the fairness, from a
financial point of view, of the Transaction Consideration to be received by
holders of the Class A Common Stock and the Class B Common Stock (collectively,
the "INDSPEC Stockholders") pursuant to the Exchange Agreement (and related
documents), in the aggregate.
On November 10, 1995, Morgan Stanley delivered to the INDSPEC Board of
Directors its written opinion that as of the date of such opinion and subject to
the various considerations set forth therein, the Transaction Consideration to
be received by the INDSPEC Stockholders is, in the aggregate, fair from a
financial point of view to such holders.
THE FULL TEXT OF MORGAN STANLEY'S WRITTEN OPINION, DATED NOVEMBER 10, 1995,
WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX VIII TO THIS PROXY STATEMENT/PROSPECTUS
AND IS INCORPORATED HEREIN BY REFERENCE. HOLDERS OF INDSPEC COMMON STOCK ARE
URGED TO, AND SHOULD, READ THIS OPINION CAREFULLY IN ITS ENTIRETY. MORGAN
STANLEY'S OPINION IS DIRECTED ONLY TO THE INDSPEC BOARD OF DIRECTORS AND THE
FAIRNESS OF THE TRANSACTION CONSIDERATION TO BE RECEIVED BY THE INDSPEC
STOCKHOLDERS, FROM A FINANCIAL POINT OF VIEW TO SUCH HOLDERS, AND IT DOES NOT
ADDRESS ANY OTHER ASPECT OF THE MERGER OR EXCHANGE OFFERS NOR DOES IT CONSTITUTE
A RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW TO VOTE AT THE SPECIAL MEETING, OR
WHETHER OR NOT TO EXCHANGE CLASS A COMMON STOCK OR CLASS B COMMON STOCK IN THE
EXCHANGE OFFERS. THE SUMMARY OF THE OPINION OF MORGAN STANLEY SET FORTH IN THIS
PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF SUCH OPINION.
In rendering its opinion, Morgan Stanley (i) analyzed certain publicly
available financial statements and other information of INDSPEC's operating
subsidiary, INDSPEC Chemical Corporation; (ii) analyzed certain internal
financial statements and other financial and operating data concerning INDSPEC
prepared by the management of INDSPEC; (iii) analyzed financial projections
prepared by the management of INDSPEC; (iv) discussed the past and current
operations and financial condition and the prospects of INDSPEC with senior
executives of INDSPEC; (v) analyzed certain publicly available financial
statements and other information of Occidental; (vi) discussed the past and
current operations and financial condition and the prospects of Occidental with
senior executives of Occidental; (vii) reviewed the reported prices and
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trading activity for Occidental Common Stock; (viii) compared certain financial
information of INDSPEC with the financial and trading performance of certain
comparable publicly traded companies and their securities; (ix) reviewed the
financial terms, to the extent publicly available, of certain comparable
acquisition transactions; (x) participated in discussions and negotiations among
representatives of INDSPEC and Occidental and their legal advisors, as well as
other potential purchasers of INDSPEC; (xi) reviewed the Exchange Agreement and
certain related documents; and (xii) performed other such analyses as Morgan
Stanley deemed appropriate.
In arriving at its opinion, Morgan Stanley assumed and relied upon, without
independent verification, the accuracy and completeness of the information
reviewed by Morgan Stanley for the purposes of its opinion. With respect to the
financial projections (including management's estimates relating to capital
expenditures), Morgan Stanley assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
future financial performance of INDSPEC. With regard to potential environmental
liabilities, Morgan Stanley reviewed a 1993 environmental assessment update
prepared for INDSPEC Chemical Corporation, and did not conduct an independent
appraisal with respect to any environmental liabilities. Morgan Stanley's
opinion is necessarily made based on economic, market and other conditions as in
effect on, and the information made available to them as of, the date of the
opinion.
The following is a brief summary of the analyses performed by Morgan
Stanley and reviewed with the INDSPEC Board on November 10, 1995 in connection
with Morgan Stanley's opinion to the INDSPEC Board:
Discounted Cash Flow Analyses. Morgan Stanley performed discounted cash
flow analyses of INDSPEC for the fiscal years ending 1996 through 2000 based on
certain financial projections prepared by the management of INDSPEC. Unlevered
free cash flows of INDSPEC were calculated as net income plus depreciation,
amortization and other non-cash charges less capital expenditures and investment
in working capital, adjusted to exclude net interest expense and its associated
tax effects. Morgan Stanley calculated terminal values by using two
methodologies, including (i) applying a range of multiples (from 6.0x to 8.0x)
to projected earnings before interest, taxes, depreciation and amortization
("EBITDA")for the fiscal year ending March 31, 2000, and (ii) applying a range
of perpetual growth rates (from 2.0% to 4.0%) to the projected unlevered free
cash flow for the fiscal year ending March 31, 2000. The cash flow streams and
terminal values were then discounted to the present using a range of discounted
rates from 12.0% to 14.0%. The present values were subsequently adjusted to
reflect the total debt of INDSPEC at September 30, 1995. Based on these
analyses, Morgan Stanley calculated a range of implied equity values for INDSPEC
from $930 to $3,617 per fully diluted share.
Comparable Company Analysis. As part of its analysis, Morgan Stanley
compared certain financial information of INDSPEC with that of a group of
publicly traded chemical companies, including Morton International, Inc., Great
Lakes Chemical Corp., Nalco Chemical Co., The Lubrizol Corporation, Loctite
Corp., Ethyl Corp. and Betz Laboratories, Inc. (collectively, the "Specialty
Chemical Comparables") and M.A. Hanna Co., Cytec Industries, Inc., The Dexter
Corporation, H.B. Fuller Co. and Petrolite Corp. (collectively, the "Small Cap
Chemical Comparables"). Such financial information included a price to earnings
multiple, aggregate value to sales percentage, aggregate value to EBITDA
multiple and aggregate value to earnings before interest and income taxes
("EBIT") multiple. Morgan Stanley noted that, based on a compilation of earnings
projections by securities research analysts, the Specialty Chemical Comparables
traded at an average of 14.8 times 1995 forecasted earnings and 12.9 times 1996
forecasted earnings and the Small Cap Chemical Comparables traded at an average
of 14.3 times 1995 forecasted earnings and 12.3 times 1996 forecasted earnings.
Morgan Stanley also noted that, based on the last twelve months as of June 30,
1995, the aggregate values for the Specialty Chemical Comparables and the Small
Cap Chemical Comparables represented an average of (i) 177% and 71% of sales,
respectively, (ii) 8.8 times EBITDA and 5.9 times EBITDA, respectively, and
(iii) 11.8 times EBIT and 9.2 times EBIT, respectively. Using the financial
information and forecasts provided by management of INDSPEC, Morgan Stanley
derived an implied public market trading range for INDSPEC based upon the
application of the average of the financial multiples from the Specialty
Chemical Comparables and Small Cap Chemical Comparables. This analysis indicated
that the
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implied public market trading range for INDSPEC would have been $601 to $2,735
per fully diluted share outstanding.
No company utilized in the comparable company analysis is identical to
INDSPEC. Accordingly, an analysis of the results of the foregoing necessarily
involves complex considerations and judgments concerning differences in
financial and operating characteristics of INDSPEC and other factors that could
affect the public trading value of the Specialty Chemical Comparables or Small
Cap Chemical Comparables or the company to which they are being compared.
Mathematical analysis (such as determining the average or median) is not in
itself a meaningful method of using comparable company data.
Analysis of Selected Precedent Transactions. Using publicly available
information, Morgan Stanley reviewed the ratio of aggregate value to (i) the
latest twelve months sales, (ii) the latest twelve months EBITDA and (iii) the
latest twelve months EBIT, in each case, for the following six completed
transactions in the chemical industry: Witco Corporation's acquisition of OSi
Specialties Holding Co.; Monsanto Company's acquisition of the Kelco division of
Merck & Co.; Great Lakes Chemical Corporation's acquisition of certain
businesses of Enichem Synthesis SpA; CHPII's acquisition of its interest in
INDSPEC; English China Clays plc's acquisition of the specialty chemicals
businesses of Calgon Corporation (a subsidiary of Merck & Co.); and an affiliate
of Donaldson, Lufkin & Jenrette, Inc.'s acquisition of the organosilicon
division of Union Carbide Corporation. Based on an analysis of these
transactions, Morgan Stanley calculated (i) an average ratio of aggregate value
to latest twelve months sales of 158%, (ii) an average ratio of aggregate value
to latest twelve months EBITDA of 7.1x and (iii) an average ratio of aggregate
value to latest twelve months EBIT of 10.8x. Such averages were applied to
INDSPEC's corresponding financial statistics to result in implied fully diluted
equity values per share of $770 to $2,888.
None of the transactions utilized in the analysis of selected precedent
transactions are is identical to the Transactions contemplated by the Exchange
Agreement. Accordingly, an analysis of the results of the foregoing necessarily
involves complex considerations and judgments concerning the differences in
financial and operating characteristics of INDSPEC and other factors that could
affect the acquisition value of the companies to which they are being compared.
Mathematical analysis (such as determining the average or median) is not itself
a meaningful method of using comparable transaction data.
Occidental Common Stock Performance. Morgan Stanley's analysis of
Occidental's Common Stock performance consisted of a historical analysis of:
closing prices and trading volumes from October 1, 1990 to October 11, 1995; the
six months forward percentage change in Occidental Common Stock prices from
October 1, 1990 to April 14, 1995; and high and low prices in the twelve months
ended October 9, 1995. From October 1, 1990 to October 11, 1995, the Occidental
Common Stock traded in the range of $15.25 to $25.375 per share (based on its
daily closing prices during such time). From the period October 1, 1990 to April
14, 1995, the rolling six month forward percentage change in Occidental Common
Stock prices ranged from 39.4% to (25.1)%. In the twelve months ended October 9,
1995, the Occidental Common Stock reached a high of $24.125 per share and a low
of $18.25 per share (based on its daily closing prices during such time).
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial or summary description. Morgan Stanley
believes that its analyses must be considered as a whole and that selecting
portions of its analyses, without considering the entirety of the analyses,
would create an incomplete view of the process underlying its opinion. In
addition, Morgan Stanley may have given various analyses more or less weight
than other analyses, and may have deemed various assumptions more or less
probable than other assumptions, so that the range of valuations resulting for
any particular analysis described above should not be taken to be Morgan
Stanley's view of the actual value of INDSPEC.
In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of INDSPEC and Occidental.
The analyses performed by Morgan Stanley are not necessarily indicative of
actual values, which may be significantly more or less favorable than suggested
by such analyses. Such analyses were prepared solely as a part of Morgan
Stanley's analysis of the fairness from a financial point of view of the
Transaction Consideration to the INDSPEC Stockholders in the aggregate and were
reviewed with the INDSPEC Board in connection with the delivery of Morgan
Stanley's opinion dated November 10,
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1995. The analyses do not purport to be appraisals or to reflect the prices at
which INDSPEC might actually be sold. Because such estimates are inherently
subject to uncertainty, none of INDSPEC, Occidental, Morgan Stanley or any other
person assumes responsibility for their accuracy. In addition, as described
above, Morgan Stanley's opinion and the information provided by it to the
INDSPEC Board were two of many factors taken into consideration by the INDSPEC
Board in making its determination to approve the Transactions. Consequently, the
Morgan Stanley analyses described above should not be viewed as determinative of
the INDSPEC Board's or INDSPEC management's opinion with respect to the value of
INDSPEC or of whether the INDSPEC Board or INDSPEC management would have been
willing to agree to different Transaction Consideration.
The consideration to be received by the stockholders of INDSPEC pursuant to
the Transactions was determined through negotiations between INDSPEC and
Occidental and was approved by the INDSPEC Board. Morgan Stanley provided advice
to INDSPEC during the course of such negotiations, but did not make a
recommendation with respect to the form of or the amount of the Transaction
Consideration.
As part of its investment banking business, Morgan Stanley is regularly
engaged in the valuation of businesses and securities in connection with mergers
and acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuation for estate, corporate and other purposes. In the ordinary course of
its business, Morgan Stanley and its affiliates may actively trade the debt
securities of INDSPEC or the debt and equity securities of Occidental for their
own account and for the accounts of customers and, accordingly, may at any time
hold a long or short position in such securities. In the past, Morgan Stanley
has provided financial advisory and investment banking services to INDSPEC and
Occidental, for which services Morgan Stanley has received customary fees.
Pursuant to the Morgan Stanley Engagement, Morgan Stanley is entitled to an
advisory fee for its time and efforts expended in connection with the
engagement, estimated to be between $150,000 and $250,000, which is payable in
the event the transaction is not consummated, and a transaction fee of
approximately $2.3 million, which is payable upon consummation of the Exchange
Offers. The Morgan Stanley fee upon consummation of the Exchange Offers will be
paid by Occidental. INDSPEC has also agreed to reimburse Morgan Stanley for its
out-of-pocket travel and lodging expenses and to indemnify Morgan Stanley and
its affiliates against certain liabilities and expenses, including liabilities
under Federal securities laws.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS
In considering the recommendations of the Board of Directors of INDSPEC
with respect to the Merger, Stockholders should be aware that certain members of
INDSPEC's management and Board of Directors have certain interests in the
Transactions that are in addition to the interests of Stockholders generally.
The Board of Directors of INDSPEC was aware of these interests and considered
them, among other matters, in approving the Merger Agreement and the
transactions contemplated thereby.
RECEIPT OF DIFFERENT CLASSES OF STOCK; TREATMENT IN THE EXCHANGE
OFFERS. The stockholders of Roundtable include CHPII, certain persons
associated with CHPII, including Messrs. Dunphy, Smith and Siegal, who are all
directors of INDSPEC, and Mr. Frank M. Spinola, the President and a director of
INDSPEC. In the Merger, Roundtable stockholders will receive shares of Class B
Common Stock in exchange for their shares of Roundtable Common Stock.
Stockholders that are not holders of Roundtable Common Stock will not be
entitled to receive shares of Class B Common Stock in the Merger. See "The
Merger -- Form of the Merger." Under the Restated Certificate, holders of shares
of Class B Common Stock will have different rights than holders of Class A
Common Stock. See "The Restated Certificate and Restated Bylaws." As a result of
the receipt by stockholders of Roundtable of Class B Common Stock in the Merger,
such stockholders will be entitled to exchange 100% of their 29,496 shares of
Class B Common Stock in the Exchange Offers. In contrast, in the Merger, INDSPEC
Stockholders other than Roundtable will receive Class A Common Stock in exchange
for their shares of INDSPEC Common Stock and such Stockholders will be entitled
to exchange not more than their pro rata share of up to 8,504 shares, or
approximately 33%, determined on a fully diluted basis, of the shares of Class A
Common Stock then expected to be outstanding or subject to issuance upon the
exercise of options (excluding shares of Class A Common Stock that certain
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stockholders have agreed not to tender in the Exchange Offers). See "The
Exchange Offers -- Terms of the Exchange Offers" and "The Exchange
Offers -- Proration."
Each stockholder of Roundtable has agreed to tender in the Exchange Offers
(and not withdraw) all Class B Common Stock held by such stockholder in exchange
for Occidental Common Stock. As a result, CHPII and Messrs. Spinola, Dunphy,
Smith and Siegal will receive $58,463,993, $4,260,480, $1,233,764, $1,122,814
and $68,789, respectively, in value of Occidental Common Stock (see "The
Exchange Offers -- Terms of the Exchange Offers" for a description of the
valuation of Occidental Common Stock in the Exchange Offers) in exchange for
their holdings of Class B Common Stock. CHPII and Mr. Dunphy will hold no shares
of INDSPEC following consummation of the Exchange Offers. Assuming that the
Exchange Offer for the Class A Common Stock is fully subscribed and that they do
not tender their Class A Common Stock, Messrs. Smith and Siegal will receive
Occidental Common Stock in exchange for 91% and 55%, respectively, of their
aggregate holdings of shares, or options to acquire shares, of INDSPEC, and will
retain 50 and 25 shares or options to acquire shares, respectively, of Class A
Common Stock. In connection with his participation in Roundtable, Mr. Spinola
agreed that he would not tender any of his Class A Common Stock in the Exchange
Offer for the Class A Common Stock. Accordingly, Mr. Spinola will receive
Occidental Common Stock in exchange for 33% of his aggregate holdings of shares,
or options to acquire shares, of INDSPEC and will retain 3,753 shares, or
options to acquire shares, of INDSPEC.
Upon consummation of the Merger, all shares of INDSPEC held by Messrs.
Danner, Lee, Todd and Covelli will be converted into Class A Common Stock. Mr.
Danner and Mr. Lee have agreed that they will tender (and not withdraw) all
shares of Class A Common Stock held by them in the Exchange Offer for the Class
A Common Stock. Assuming that the Exchange Offer for the Class A Common Stock is
fully subscribed and assuming that Mr. Todd and Mr. Covelli also tender all
shares of Class A Common Stock held by them, Messrs. Danner, Lee, Todd and
Covelli will receive approximately $1,852,643, $1,416,942, $245,310 and
$1,197,261, respectively, in value of Occidental Common Stock in the Exchange
Offer for the Class A Common Stock and will retain approximately 1,695, 1,296,
224 and 1,095 shares, or vested Options to acquire shares, respectively, of
Class A Common Stock following consummation of the Exchange Offers.
EMPLOYMENT AGREEMENTS. Prior to the Merger, INDSPEC will terminate its
present employment agreements (each, a "Current Employment Agreement") with
Messrs. Spinola, Danner, Lee and Covelli and will enter into replacement
employment agreements (each, a "Replacement Employment Agreement") with such
executive officers. The termination of the Current Employment Agreements and the
effectiveness of the Replacement Employment Agreements is conditioned on, and
occurs upon, the Closing of the Exchange Offers. INDSPEC and Mr. Todd will enter
into an amendment or supplement to Mr. Todd's current employment agreement, the
effectiveness of which is conditioned on the Closing of the Exchange Offers.
Messrs. Spinola and Danner are officers and directors of INDSPEC and Chemical.
Mr. Lee is an officer of INDSPEC and Chemical, and Messrs. Covelli and Todd are
officers of Chemical. See "Management of INDSPEC." INDSPEC currently anticipates
that the Replacement Employment Agreements will be substantially similar to the
Current Employment Agreements but will expire upon the earlier of December 31,
2000 or the Conversion Date, rather than December 2, 1996. The Current
Employment Agreements are described under "Management of INDSPEC -- Employment
and Other Agreements." Each Replacement Employment Agreement will also provide
for a change in the way that severance benefits are calculated, which change may
result in a severance payment that is greater or lesser than that provided for
pursuant to the Current Employment Agreements depending upon the date on which
employment is terminated. INDSPEC currently anticipates that the supplement to
Mr. Todd's employment agreement will include provisions relating to (i) Mr.
Todd's agreement to tender in the Exchange Offers all shares of Class A Common
Stock that he is entitled to receive upon exercise of vested Options, (ii) if
Mr. Todd so elects, payment to Mr. Todd in exchange for the cancellation of all
related Options exercisable for shares of Class A Common Stock of an amount
equal to $1,768.57 multiplied by the number of such shares not acquired by
Occidental in the Exchange Offers, and (iii) in the event of Mr. Todd's
retirement after December 31, 1996, if Mr. Todd so elects, the surrender by Mr.
Todd before June 30, 1997, under certain circumstances of any remaining Options
in consideration for the greater of $2,218.57 per share or the aggregate dollar
value per share of Occidental Common Stock that would be received in a Put Offer
if the date of surrender were the Put Offer exchange
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date, minus the aggregate exercise price. The foregoing amounts would be payable
in cash or by delivery of a promissory note or shares of Occidental Common
Stock. See "Management of INDSPEC -- Employment and Other Agreements."
GRANT OF PROXY. Messrs. Spinola, Danner and Lee, the holders of 17% of the
voting power of INDSPEC following the Merger, have granted an irrevocable proxy
to John K. Castle to vote their INDSPEC shares.
INDEMNIFICATION AND INSURANCE. Under the Exchange Agreement, all rights to
indemnification and exculpation from liability for acts or omissions occurring
prior to the Closing existing in favor of the present or former directors,
officers or employees, as provided in the respective certificates of
incorporation or bylaws of INDSPEC or its subsidiaries or pursuant to other
agreements, will survive the Closing Date and continue in full force and effect
for a period of at least six years from the Closing Date. Occidental has also
agreed to cause INDSPEC to maintain, for a period of not less than six years
after the Closing Date, directors' and officers' insurance and indemnification
policies for INDSPEC. See "The Exchange Agreement -- Indemnification Insurance."
ADVISORY FEE TO CASTLE HARLAN. On March 7, 1995, INDSPEC entered into an
engagement letter with Castle Harlan, the investment manager to CHPII, pursuant
to which Castle Harlan agreed to provide certain financial advice and assistance
of an investment banking nature. In consideration for these services, INDSPEC
agreed that Castle Harlan would be entitled to reimbursement for its expenses
and, in the event that a sale or other business combination involving INDSPEC
should occur, Castle Harlan would be entitled to receive a fee of $1,250,000.
The agreement is terminable by INDSPEC at any time, but with a provision that
the right to receive fees extends for 18 months thereafter if a transaction
occurs with a party with which discussions were held during the period of the
agreement. Castle Harlan will be entitled to payment of the $1,250,000 fee upon
the closing of the Exchange Offers. This payment will be made by Occidental.
INDSPEC and Castle Harlan intend to enter into an agreement providing for the
satisfaction and release of the Castle Harlan engagement letter, effective as of
the closing date of the Exchange Offers, except for continuation of the
indemnification and contribution provisions of such engagement letter.
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<PAGE> 38
PROJECTED FINANCIAL INFORMATION OF INDSPEC
In the course of discussions with Morgan Stanley and Occidental, INDSPEC
provided Morgan Stanley and Occidental with certain projected financial data for
the fiscal years ending March 31, 1996, 1997, 1998, 1999, and 2000. This data
was not prepared with a view to public disclosure or compliance with published
guidelines of the Commission or the guidelines established by the American
Institute of Certified Public Accountants regarding projections, and is included
in this Proxy Statement/Prospectus only because it was provided to Morgan
Stanley and Occidental. INDSPEC's independent auditors have not examined,
compiled or applied any procedures with respect to this data and express no
opinion or any kind of assurance thereon. None of INDSPEC, Occidental or Morgan
Stanley, or any of their respective advisors, assumes any responsibility for the
validity, reasonableness, accuracy or completeness of this projected financial
data. While presented with numerical specificity, this projected financial data
is based on a variety of assumptions relating to the business of INDSPEC (some
of which are listed below) which, although considered appropriate by INDSPEC,
may not be realized. Moreover, the data is subject to significant uncertainties
and contingencies, many of which are beyond the control of INDSPEC. Therefore,
this projected data is inherently imprecise, and there can be no assurance that
projected financial results will be realized. It is expected that there will be
a difference between actual and projected results and actual results may vary
materially from those shown. Neither INDSPEC nor Occidental intends to update or
otherwise revise this projected data. The inclusion of the projections herein
should not be regarded as an indication that INDSPEC, Occidental or Morgan
Stanley considers it an accurate prediction of future results. INDSPEC
stockholders are cautioned not to place undue reliance on the projections, which
should be read together with the other information relating to the business,
assets and financial condition of INDSPEC, and the consolidated financial
statements of INDSPEC, included herein. See "Business of INDSPEC," "Selected
Historical Financial Information of INDSPEC," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Index to
Financial Statements." Set forth below is a summary of the projected financial
data prepared by INDSPEC in April 1995 and subsequently provided to Morgan
Stanley and Occidental.
<TABLE>
<CAPTION>
FOR THE YEAR ENDING MARCH 31,
------------------------------------------
1996 1997 1998 1999 2000
------ ------ ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales..................................... $129.4 $137.9 $148.6 $175.7 $192.1
Operating expenses (excluding depreciation and
amortization)............................... 84.5 87.9 93.1 111.4 120.4
Depreciation and amortization................. 15.2 15.8 16.5 21.1 21.7
Operating profit.............................. 29.7 34.2 39.0 43.2 50.0
Interest expense and debt amortization
costs....................................... 18.2 17.3 17.2 14.5 15.4
Income taxes.................................. 4.8 7.0 8.2 11.6 15.9
Net income.................................... 6.7 9.9 13.6 17.1 18.7
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31,
------------------------------------------
1996 1997 1998 1999 2000
------ ------ ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Accounts receivable........................... $ 18.0 $ 19.2 $ 20.7 $ 24.4 $ 26.7
Inventory..................................... 16.4 17.5 18.8 22.3 24.3
Net fixed assets.............................. 99.9 126.5 130.0 121.1 111.5
Long-term debt (including current portion).... 158.7 165.2 150.6 127.1 127.1
</TABLE>
The foregoing summary projected financial data does not take into account
any of the potential effects of the Transactions contemplated by the Exchange
Agreement, including the Merger and the Exchange Offers. INDSPEC prepared the
projected financial data in April 1995 based on the following assumptions:
1. Global assumptions. The projections assume that no significant
technological, environmental, or regulatory developments occur, of either a
favorable or unfavorable nature, that would affect
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<PAGE> 39
INDSPEC's chemical operations, although it is assumed that INDSPEC is
successful in developing hydroperoxidation technology for the production of
resorcinol at a plant (the "New Plant") to be constructed in the future.
The projections also assume no significant interruption of the operation of
the Petrolia plant, or of its significant suppliers or customers. It is
assumed that worldwide economic growth is 2.5% per year and that the value
of the U.S. Dollar remains stable with respect to other currencies
throughout the projection period.
2. Net sales. The projections assume that no new competitive
resorcinol plants (other than the New Plant) are completed during the
projection period. It is also assumed that INDSPEC will increase capacity
at its Petrolia plant from a proven capacity of 47 million pounds per year
to 50 million pounds per year. It is assumed that the New Plant is
completed in 1999 and net sales for that year include revenue from the sale
of ten million pounds of resorcinol from the New Plant.
3. Operating expenses. Production costs, not including raw material
costs, are assumed to increase by 8% per year at the Petrolia plant until
the New Plant is completed and then are assumed to remain constant as
production is shifted to the New Plant. Raw material costs are assumed to
increase 26% in 1996 due to a 65% increase in caustic soda prices and then
to decline 8% in 1997 as caustic soda prices are projected to decline 17%
and then remain constant for the balance of the projection period. Selling,
research, general and administrative costs are assumed to increase 4% per
year throughout the projection period plus an additional $1 million per
year of overhead is added for each of 1999 and 2000 due to the addition of
the New Plant. Operating expenses include, among other items, forecasts of
profit sharing expense and bonuses to officers of $4.7 million, $5.3
million, $5.7 million, $6.3 million and $6.8 million respectively for each
of the five years ending March 31, 2000; management fees to Castle Harlan
of $1 million for each of the five years ending March 31, 2000; and
research and development expenses incurred in connection with the New Plant
of $1 million for the year ending March 31, 1996.
4. Depreciation and amortization. The depreciation rate on all
capital spending is assumed to be 10 years utilizing the straight line
method of depreciation.
5. Interest expense and debt amortization costs. INDSPEC has the
option of borrowing under the Senior Credit Facility at LIBOR plus
approximately 2.5% or at the prime rate plus approximately 1.5%. To date,
substantially all of the borrowing has occurred under the LIBOR-based
option. The projections assume that all the borrowing will occur under the
LIBOR option at an effective rate of 8.5% to 8.75%. It is assumed that the
senior subordinated notes are outstanding for the entire projection period
and that no notes are tendered in the event of a change of control
occurrence as a result of the Exchange Agreement being consummated.
6. Income taxes. Income tax rates are assumed to remain at the rates
in effect in March 1995 throughout the projection period.
7. Capital spending. INDSPEC is projected to spend approximately $6
million per year in capital expenditures maintaining and improving the
Petrolia resorcinol facility. The New Plant is assumed to require capital
expenditures of $2 million in 1996, $30 million in 1997, and $8 million in
1998.
30
<PAGE> 40
THE SPECIAL MEETING
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, Stockholders will be asked to consider and vote
upon (i) a proposal to approve and adopt the Merger Agreement, which provides
for the Merger of Roundtable with and into INDSPEC, with INDSPEC being the
surviving corporation and (ii) such other matters as may properly come before
the Special Meeting. For more information concerning the Merger and the Merger
Agreement, see "The Merger" and "The Merger Agreement." A copy of the Merger
Agreement is attached to this Proxy Statement/Prospectus as Annex II.
RECORD DATE
The Board of Directors of INDSPEC has fixed the close of business on
February , 1996 (the "Record Date") as the date for determining Stockholders
entitled to notice of and to vote at the Special Meeting and any postponements
or adjournments thereof. On the Record Date, 46,738 shares of INDSPEC Common
Stock were outstanding which were held of record by approximately 102 persons.
VOTING RIGHTS AND VOTE REQUIRED
Each share of INDSPEC Common Stock is entitled to one vote on any matter
that comes before the Special Meeting. INDSPEC's ESOP provides that participants
in the ESOP are entitled to direct the ESOP trustee to vote the shares of Common
Stock allocated to their accounts with respect to the Merger Agreement.
The presence in person or by proxy of the holders of a majority of the
shares of INDSPEC Common Stock outstanding on the Record Date will constitute a
quorum for the Special Meeting. Abstentions will be considered for purposes of
establishing a quorum.
Under the DGCL, the Merger Agreement must be approved by the holders of a
majority of the outstanding shares of INDSPEC Common Stock entitled to vote at
the Special Meeting. Abstentions will not be voted for or against the approval
and adoption of the Merger Agreement, but will have the effect of a negative
vote because the affirmative vote of holders of a majority of the shares of
INDSPEC Common Stock entitled to vote is required to approve such proposal.
However, it is a condition to Occidental's commencement of the Exchange Offers
that either (i) holders of at least 90% of the outstanding shares of INDSPEC
Common Stock vote in favor of, or consent to, the Merger or (ii) holders of less
than 10% of the outstanding shares of INDSPEC Common Stock remain eligible for
appraisal rights under the DGCL. See "The Exchange Offers -- Conditions to the
Commencement of the Exchange Offers."
SECURITY OWNERSHIP OF MANAGEMENT AND AFFILIATES
Directors and executive officers of INDSPEC and affiliates of such persons
had sole or shared voting power with respect to 33,263 shares of INDSPEC Common
Stock, representing 71% of the INDSPEC Common Stock outstanding as of
, 1996. See "Principal INDSPEC Stockholders."
VOTING AGREEMENT
Pursuant to the Voting Agreement, Roundtable and certain other INDSPEC
Stockholders owning, in the aggregate, 31,952 shares of INDSPEC Common Stock or
68% of the INDSPEC Common Stock outstanding on the Record Date, have agreed to
vote their shares of INDSPEC Common Stock in favor of adoption and approval of
the Merger Agreement. The vote of Roundtable and such other Stockholders in
accordance with the Voting Agreement would be sufficient to approve the Merger
Agreement without any action on the part of any other holder of INDSPEC Common
Stock. See "The Voting Agreement."
APPRAISAL RIGHTS
Any Stockholder who does not vote in favor of, or who abstains from voting
on, the Merger Agreement and who complies with the provisions of Section 262 of
the DGCL has the right to be paid in cash the "fair
31
<PAGE> 41
value" of his shares of INDSPEC Common Stock. A copy of Section 262 is attached
as Annex VII to this Proxy Statement/Prospectus. A Stockholder contemplating the
exercise of the appraisal rights provided by Section 262 should carefully review
that Section, including without limitation the procedural steps required to
perfect those rights. A summary description of these rights is provided under
"Dissenting Stockholders' Rights of Appraisal" below. A Stockholder who fails to
comply strictly with the requirements under Section 262 will lose his or her
appraisal rights and will be entitled to the Merger Consideration for the shares
of INDSPEC Common Stock held by such Stockholder. Any Stockholder who has
demanded appraisal rights in connection with the Merger will not be able to
participate in the Exchange Offers unless such appraisal rights have lapsed or
have been withdrawn prior to the expiration date of the Exchange Offers.
It is a condition to Occidental's commencement of the Exchange Offers that
either (i) holders of at least 90% of the outstanding shares of INDSPEC Common
Stock vote in favor of, or consent to, the Merger or (ii) holders of less than
10% of the outstanding shares of INDSPEC Common Stock remain eligible for
appraisal rights under the DGCL. See "The Exchange Offers -- Conditions to the
Commencement of the Exchange Offers."
PROXIES
In order for a Stockholder to have his shares of INDSPEC Common Stock voted
by proxy, such Stockholder should sign and return the enclosed proxy card so
that it is received prior to the closing of the polls at the Special Meeting.
Any Stockholder who executes a proxy retains the right to revoke it at any
time by giving written notice of revocation to the Secretary of INDSPEC at 411
Seventh Avenue, Suite 300, Pittsburgh, Pennsylvania 15219 so that it is received
no later than the closing of the polls at the Special Meeting, or by attending
the Special Meeting in person and voting thereat or by executing a later dated
proxy delivered prior to the closing of the polls at the Special Meeting. Unless
so revoked, the shares represented by the proxies solicited by the Board of
Directors of INDSPEC will be voted in accordance with the directions given
therein by the Stockholder. Any proxy not specifying to the contrary will be
voted FOR the approval and adoption of the Merger Agreement. So far as the
INDSPEC Board of Directors is aware, such proposal is the only matter to be
acted upon at the Special Meeting. As to any other matter which may properly
come before the Special Meeting or any postponements or adjournments thereof,
the persons designated as proxies in the accompanying proxy card will vote
thereon in accordance with their best judgment.
EXPENSES OF SOLICITATION
The expenses of soliciting proxies will be paid by INDSPEC. However,
printing and mailing fees associated with the Registration Statement and this
Proxy Statement/Prospectus and fees incurred in connection with preparation of
the audited consolidated financial statements of INDSPEC and its subsidiaries
for the 12-month period ended September 30, 1995 will be shared equally by
Occidental and INDSPEC. In addition to the use of the mails, proxies may be
solicited personally or by telephone, facsimile or telegraph, by directors,
officers and regular employees of INDSPEC who will not receive additional
compensation therefor.
STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY CARDS.
THE MERGER
The discussion in this Proxy Statement/Prospectus of the Merger and the
description of the Merger's principal terms are subject to and qualified in
their entirety by reference to the Merger Agreement, a copy of which is attached
to this Proxy Statement/Prospectus as Annex II and which is incorporated herein
by reference.
EFFECTIVE TIME
The Merger will become effective on the date and at the time (the
"Effective Time") when the Certificate of Merger is filed with the Secretary of
State of the State of Delaware. The Certificate of Merger
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<PAGE> 42
will be executed and so filed as promptly as practicable after the satisfaction
or waiver of the conditions set forth in the Merger Agreement.
FORM OF THE MERGER
At the Effective Time of the Merger, Roundtable will be merged with and
into INDSPEC, with INDSPEC as the surviving corporation. As a result of the
Merger, the separate corporate existence of Roundtable will cease, and INDSPEC
will succeed to all the rights and be responsible for all the obligations of
Roundtable in accordance with the DGCL. Subject to the terms and conditions of
the Merger Agreement, at the Effective Time, by virtue of the Merger and without
any further action on the part of any stockholder of INDSPEC or Roundtable:
- each outstanding share of INDSPEC Common Stock (other than shares held by
Roundtable or Stockholders who have perfected appraisal rights under the
DGCL) will be converted into one share of INDSPEC's new Class A Common
Stock;
- each outstanding share of Roundtable Common Stock will be converted into
the right to receive one share of INDSPEC's new Class B Common Stock;
- each share of INDSPEC Common Stock held in the treasury of INDSPEC will
be converted into one share of Class A Common Stock;
- each outstanding share of INDSPEC Common Stock held by Roundtable will be
cancelled and retired; and
- INDSPEC's certificate of incorporation and bylaws will be amended and
restated as set forth in Annex III and Annex IV, respectively. See "The
Restated Certificate and Restated Bylaws."
MANAGEMENT OF INDSPEC AFTER THE MERGER
The officers and directors of INDSPEC immediately prior to the Merger will
be the officers and directors of INDSPEC immediately after the Merger except
that Mr. Smith will resign as a director. However, the Restated Certificate
which will be effective after the Merger will provide for, among other things,
two classes of directors. The Class A Directors will be elected by the holders
of the Class A Common Stock and the Class B Directors will be elected by the
holders of the Class B Common Stock. Upon consummation of the Merger, the Class
A Directors will be Messrs. Spinola, Danner and Scorsone, and the Class B
Directors will be Messrs. Castle, Siegal and Dunphy. In addition, the Restated
Certificate and the Restated Bylaws will not permit the officers of INDSPEC to
take certain specified actions without the approval of the Board of Directors,
and all matters submitted to the Board for its approval will require the vote of
the greater of (i) five directors or (ii) a majority of the directors then in
office. See "The Restated Certificate and Restated Bylaws." Upon consummation of
the Exchange Offers, Occidental will be entitled to elect all three of the Class
B Directors. See "The Exchange Offers -- Management of INDSPEC After the
Exchange Offers."
TREATMENT OF OUTSTANDING OPTIONS AND WARRANT
There are currently outstanding options to purchase 5,970 shares of INDSPEC
Common Stock for $100 per share issued pursuant to INDSPEC's 1989 Incentive
Stock Option Plan and options to purchase 5,833 shares of INDSPEC Common Stock
for $450 per share issued pursuant to INDSPEC's 1993 Incentive Stock Option Plan
(collectively, the "Options"). In accordance with their terms, as a result of
the Merger, the Options will become options to purchase an equal number of
shares of Class A Common Stock at the same exercise price.
There is also currently an outstanding warrant to purchase 506 shares of
Common Stock for $100 per share (the "Warrant"). Subsequent to the Merger, the
Warrant will represent the right to purchase 506 shares of Class A Common Stock
for $100 per share.
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<PAGE> 43
CONDITIONS TO THE CONSUMMATION OF THE MERGER
The obligation of each of INDSPEC and Roundtable to consummate the Merger
is subject to the satisfaction or waiver, at or prior to the Effective Time, of
certain conditions, including the following: (i) the accuracy, as of the date of
the Merger Agreement and as of the Effective Time, of the representations and
warranties of the other party set forth in the Merger Agreement; (ii) the other
party's compliance with all agreements and satisfaction of all conditions set
forth in the Merger Agreement to be performed or satisfied by it at or prior to
the Effective Time; (iii) the accuracy, as of the Effective Date, of the
representations and warranties of Occidental set forth in the Exchange
Agreement; (iv) Occidental's compliance with all agreements and satisfaction of
all conditions set forth in the Exchange Agreement to be performed or satisfied
by it at or prior to the Effective Date; (v) the payment of certain fees to
Castle Harlan; (vi) INDSPEC's receipt of certain legal opinions from the
Associate General Counsel of Occidental; (vii) the absence of restrictions under
Federal or state securities laws on the transferability of the shares of
Occidental Common Stock issued pursuant to the Exchange Offers; (viii) the
approval for listing on the New York Stock Exchange, subject to notice of
issuance, of the shares of Occidental Common Stock to be issued in the
Transactions; (ix) the completion of all filings required to be made with, and
the receipt of all consents, approvals, permits and authorizations required to
be obtained from, government authorities; (x) the effectiveness under the
Securities Act of the registration statements relating to the Occidental Common
Stock to be issued in the Transactions; the registration of the Occidental
Common Stock covered by such registration statements under applicable state
securities laws; the absence of any order suspending the effectiveness of such
registration statements or any post-effective amendments thereto; and the
absence of any pending or threatened proceeding for the issuance of such an
order by the Commission or any securities authority in any jurisdiction; (xi)
the termination or expiration of the waiting period (and any extension thereof)
applicable to the consummation of the Exchange Offers under the HSR Act; (xii)
the absence of any temporary restraining order, preliminary or permanent
injunction or other order issued by any governmental authority preventing the
Merger or the commencement or consummation of the Exchange Offers, and the
absence of any pending or threatened material litigation that challenges the
validity, legality or enforceability of the Exchange Agreement, the Merger
Agreement, the Voting Agreement or the Enabling Agreement or the transactions
contemplated thereby; (xiii) the execution and delivery by certain INDSPEC
employees of an employment agreement or amendment to such employee's existing
employment agreement; and (xiv) the amendment of INDSPEC's Senior Credit
Facility or waiver of certain provisions thereof so that the Transactions do not
constitute a default thereunder.
REGULATORY APPROVALS
The Exchange Offers will be subject to certain regulatory approvals,
including the termination or expiration of the waiting period under the HSR Act,
and the obtaining of such approvals is a condition to the Merger. Occidental and
INDSPEC do not believe that any material Federal or state regulatory approvals
will be required in connection with the Merger. See "The Exchange
Offers -- Regulatory Approvals" and "The Merger -- Conditions to the
Consummation of the Merger."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain Federal income tax consequences of
the Merger to holders of INDSPEC Common Stock, holders of Roundtable Common
Stock, INDSPEC and Roundtable and is based on the Federal income tax law now in
effect, which is subject to change, possibly retroactively. This summary does
not discuss all aspects of Federal income taxation which may be important to
particular holders of INDSPEC Common Stock, Roundtable Common Stock or the
Warrant, in light of their individual investment circumstances, including
certain types of holders subject to special tax rules (e.g., financial
institutions, broker-dealers, insurance companies, tax-exempt organizations and
foreign taxpayers). In addition, this summary does not address state, local or
foreign tax consequences. Each holder of INDSPEC Common Stock, Roundtable Common
Stock or the Warrant is urged to consult his or her tax advisor regarding the
specific Federal, state, local, and foreign income and other tax consequences of
the Merger.
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<PAGE> 44
The Merger will qualify as a reorganization and, accordingly, no gain or
loss will be recognized by INDSPEC, Roundtable or their stockholders incident to
the reorganization. INDSPEC will retain its tax basis in its assets and other
tax attributes.
The tax basis in Class A Common Stock and Class B Common Stock received by
INDSPEC and Roundtable stockholders, respectively, will be the same as the tax
basis in the INDSPEC Common Stock held prior to the Transactions. The holding
period for Class A Common Stock or Class B Common Stock will include the holding
period for the INDSPEC Common Stock held prior to the Transactions.
The status of the Options as "incentive stock options" will be unchanged by
the Merger.
ACCOUNTING TREATMENT
INDSPEC intends to account for the Merger with Roundtable as a
recapitalization and, therefore, the basis of the assets and liabilities of
INDSPEC will not change as a result of the Merger.
THE RESTATED CERTIFICATE AND RESTATED BYLAWS
The rights of INDSPEC Stockholders after the Merger will be different from
their rights prior to the Merger as a result of the amendment of INDSPEC's
certificate of incorporation and bylaws and as a result of particular aspects of
the DGCL that apply to corporations with more than one class of stockholders.
The following is a summary of certain provisions of the Restated Certificate and
the Restated Bylaws of INDSPEC which will be effective following the Merger. The
following summary does not purport to be complete and is qualified in its
entirety by reference to the Restated Certificate and the Restated Bylaws,
copies of which are attached hereto as Annex III and Annex IV, respectively.
CAPITAL STOCK
Pursuant to the Restated Certificate, the authorized capital stock of
INDSPEC will consist of 75,000 shares of Class A Common Stock, par value $.01
per share, 75,000 shares of Class B Common Stock, par value $.01 per share, and
20,000 shares of Preferred Stock, par value $.01 per share (the "Preferred
Stock").
PREFERRED STOCK
The Restated Certificate expressly authorizes the Board of Directors to
provide for the issuance of all or any shares of the Preferred Stock in one or
more classes or series, and to fix for each such class or series such voting
powers, full or limited, or no voting powers, and such distinctive designations,
preferences and relative, participating, optional or other special rights and
such qualifications, limitations or restrictions thereof, as shall be stated and
expressed in the resolution or resolutions adopted by the Board of Directors
providing for the issuance of such class or series and as may be permitted by
the DGCL.
CLASS A COMMON STOCK AND CLASS B COMMON STOCK
INDSPEC currently has only one class of common stock and each holder of
INDSPEC Common Stock is entitled to one vote per share on each matter upon which
stockholders have the right to vote. The Restated Certificate provides for two
classes of common stock -- Class A Common Stock and Class B Common Stock. Except
as otherwise provided in the Restated Certificate, each share of Class A Common
Stock and Class B Common Stock will be identical in all respects and will have
equal powers, preferences, rights and privileges. Holders of Class A Common
Stock and Class B Common Stock will vote together as a single class on every
matter submitted to a vote of the stockholders of INDSPEC, except as to those
matters on which separate class voting is required by applicable law or by the
Restated Certificate. Prior to the Conversion Date (as defined below), every
holder of Class A Common Stock will be entitled to 4.8 votes for each share of
Class A Common Stock standing in such holder's name in the transfer books of
INDSPEC, and every holder of Class B Common Stock will be entitled to one vote
for each share of Class B Common Stock standing in such holder's name in the
transfer books of INDSPEC. From and after the Conversion Date, every holder of
Class A Common Stock and Class B Common Stock will be entitled to one vote for
each share standing in
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<PAGE> 45
such holder's name in the transfer books of INDSPEC. Prior to the Conversion
Date, holders of Class A Common Stock will vote as a separate class for the
election of Class A Directors, and holders of Class B Common Stock will vote as
a separate class for the election of Class B Directors. See "The Restated
Certificate and Restated Bylaws -- Board of Directors."
The "Conversion Date" is the earliest to occur of (i) the fifth anniversary
of the first date on which Occidental acquires 67% or more of the total number
of shares of INDSPEC Class A Common Stock and Class B Common Stock outstanding,
determined on a fully diluted basis, (ii) the consummation of the Put Offer or
the redemption of Class A Common Stock in accordance with the Restated
Certificate, (iii) the first day after the Closing Date on which Occidental owns
no shares of Class B Common Stock and (iv) the termination of the Exchange
Agreement prior to the closing of the Exchange Offers, unless the holders of a
majority of the Class B Common Stock otherwise agree in writing.
Pursuant to the Restated Certificate, INDSPEC may not effect a stock split
(whether by dividend or otherwise), reverse stock split, reclassification or
other similar event with respect to the Class A Common Stock or the Class B
Common Stock unless it effects at the same time an identical stock split,
reverse stock split, reclassification or other similar event with respect to
both the Class A Common Stock and the Class B Common Stock.
Subject to the rights of holders of any series of Preferred Stock,
dividends will be paid on the Class A Common Stock and Class B Common Stock
when, as and if declared by the Board of Directors and may be payable in cash,
property or securities of INDSPEC; provided, that (i) the holders of Class A
Common Stock and Class B Common Stock will be entitled to share equally, share
for share, in such dividends; and (ii) if dividends or distributions are
declared that are payable in shares of, or in subscription or other rights to
acquire shares of, Class A Common Stock or Class B Common Stock, dividends or
distributions will be declared that are payable at the same rate per share on
Class A Common Stock and Class B Common Stock, and the dividends or
distributions payable in shares of, or in subscription or other rights to
acquire shares of, any particular class of INDSPEC common stock will be made
available to each holder of Class A Common Stock and Class B Common Stock.
CONVERSION OF CLASS A COMMON STOCK ACQUIRED BY OCCIDENTAL
Prior to the Conversion Date, each share of Class A Common Stock acquired
by Occidental will, without any action on the part of Occidental, be
automatically converted into one share of Class B Common Stock. Prior to the
Conversion Date, INDSPEC is required to reserve and keep available out of the
authorized and unissued shares of Class B Common Stock, solely for the purpose
of effecting the conversion of the outstanding Class A Common Stock, such number
of shares of Class B Common Stock as shall from time to time be sufficient to
effect a conversion of all shares of Class A Common Stock, and INDSPEC may not
take any action that would cause the total number of shares of Class B Common
Stock then outstanding or issuable upon the conversion of the shares of Class A
Common Stock then outstanding or reserved for issuance for any other purpose to
exceed the total number of shares of Class B Common Stock authorized.
REDEMPTION OF CLASS A COMMON STOCK
The INDSPEC Common Stock is not currently subject to redemption. Pursuant
to the Restated Certificate, at any time on or after the fifth anniversary of
the Closing Date and on or before the seventh anniversary of the Closing Date,
upon receipt of a written notice from Occidental requesting the redemption of
Class A Common Stock, all shares of Class A Common Stock then outstanding will
be redeemed (the "Notice Redemption") for that number of shares of Occidental
Common Stock equal to (i) the number of shares of Class A Common Stock so
redeemed, multiplied by (ii) the Notice Redemption Ratio (as defined below). The
Notice Redemption will occur on the date specified by Occidental in its notice
but must be the last business day of a fiscal month and a date not less than 45
days after the date of Occidental's notice.
In addition, if (i) Occidental acquires 67% or more of the total number of
shares of Class A Common Stock and Class B Common Stock then outstanding
(determined on a fully diluted basis but excluding any shares acquired pursuant
to the Put Offer), or (ii) a number of shares of Class A Common Stock have been
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tendered pursuant to the Put Offer such that, upon the acquisition of such
shares, Occidental would own 67% or more of the total number of shares of Class
A Common Stock and Class B Common Stock then outstanding (determined on a fully
diluted basis), then at any time during the 90-day period beginning on the first
business day after such acquisition (or, in the case of clause (ii), the tender
of such shares), upon receipt by INDSPEC from Occidental of a written notice to
such effect, INDSPEC is required to redeem (the "Threshold Redemption") all of
the shares of Class A Common Stock then outstanding for that number of shares of
Occidental Common Stock equal to (A) the number of shares of Class A Common
Stock so redeemed, multiplied by (B) the Threshold Redemption Ratio (as defined
below).
In the event of a Notice Redemption or Threshold Redemption, INDSPEC will
mail each record holder of shares of Class A Common Stock, not less than thirty
(30) days nor more than sixty (60) days prior to the redemption date, a notice
which will include or be accompanied by all information required by law and will
specify the method of calculating the Notice Redemption Ratio or the Threshold
Redemption Ratio, as the case may be, the redemption date, and the place or
places at which the shares of Class A Common Stock will be redeemed.
No fractional shares or scrip representing fractional shares of Occidental
Common Stock will be issued upon redemption of shares of Class A Common Stock.
The number of full shares of Occidental Common Stock issuable upon redemption of
shares of Class A Common Stock will be computed on the basis of the aggregate
number of shares of Class A Common Stock surrendered by each record holder
thereof. In lieu of any fractional shares of Occidental Common Stock that would
otherwise be issuable upon redemption of any shares of Class A Common Stock, the
holder thereof will be entitled to a cash payment with respect to such
fractional share.
INDSPEC will not be required to pay any tax that may be payable in respect
of any issuance or delivery of shares of Occidental Common Stock issuable upon
redemption of Class A Common Stock, and no such issuance or delivery will be
made unless and until the holder of shares of Class A Common Stock being
redeemed has paid the amount of any such tax or has established, to the
satisfaction of INDSPEC, that such tax has been paid.
The "Notice Redemption Ratio" is equal to (i) (a) an amount equal to (x)
the EBITDA Multiple (as defined below) multiplied by 95% of the LTM Operating
EBITDA (as defined below), minus (y) Net Debt (as defined below) plus Other
Liabilities (as defined below), in each case calculated as of the last day of
the fiscal month immediately preceding the fiscal month in which the redemption
date occurs, divided by (b) the aggregate number of shares of Class A Common
Stock and Class B Common Stock outstanding on the redemption date, determined on
a fully diluted basis, divided by (ii) the average of the closing prices of
Occidental Common Stock on the New York Stock Exchange on the 20 consecutive
trading days immediately preceding the fifth trading day next preceding the
redemption date (subject to adjustment for certain events, including a dividend
on, or subdivision, reclassification, combination or other recapitalization
affecting, the Occidental Common Stock).
The "Threshold Redemption Ratio" is equal to (i) (a) (x) an amount equal to
(1) the EBITDA Multiple multiplied by the LTM Operating EBITDA, minus (2) Net
Debt plus Other Liabilities, in each case calculated as of the last day of the
fiscal month immediately preceding the fiscal month in which the redemption date
occurs, divided by (y) the aggregate number of shares of Class A Common Stock
and Class B Common Stock outstanding on the redemption date, determined on a
fully diluted basis, or (b) if (x) the Threshold Redemption is being made as a
result of Occidental's acquisition of 67% or more of the total number of shares
of Class A Common Stock and Class B Common Stock then outstanding and (y) the
highest purchase price per share of Class A Common Stock paid by Occidental in
acquiring any shares of Class A Common Stock during the 12 months immediately
preceding the redemption date (excluding any shares acquired on or prior to the
Closing Date) is greater than the amount of clause (a) above, such purchase
price, divided by (ii) the average of the closing prices of Occidental Common
Stock on the New York Stock Exchange on the 20 consecutive trading days
immediately preceding the fifth trading day next preceding the redemption date
(subject to adjustment for certain events, including a dividend on, or
subdivision, reclassification, combination or other recapitalization affecting,
the Occidental Common Stock).
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For purposes of determining the Notice Redemption Ratio, the Threshold
Redemption Ratio and certain other matters arising under the Enabling Agreement
discussed below, the following terms have the meanings set forth below:
"Corporation Accounting Practices" means the principles, methods and
practices used by INDSPEC and its consolidated subsidiaries in the preparation
of financial statements of INDSPEC and its consolidated subsidiaries as of, and
for the twelve months ended, September 30, 1995.
"Debt" as of any date means the sum (without duplication) of (i) long-term
debt (including the current portion of long-term debt) of INDSPEC and its
consolidated subsidiaries on such date, (ii) capitalized lease obligations of
INDSPEC and its consolidated subsidiaries on such date, (iii) reimbursement
obligations of INDSPEC and its consolidated subsidiaries on such date with
respect to drawings under letters of credit and (iv) all liabilities of others
of the kind described in clauses (i), (ii) and (iii), above, that INDSPEC or any
of its consolidated subsidiaries has guaranteed or otherwise expressly assumed,
in the case of clause (i), (ii) or (iii), above, as determined in accordance
with GAAP and the Corporation Accounting Practices applied on a consistent
basis, and in the case of clause (iv), above, in an amount equal to the maximum
liability thereunder upon the occurrence of the contingency giving rise to the
obligation thereunder.
"EBITDA Multiple" means .
"GAAP" means generally accepted accounting principles, as in effect in the
United States on September 30, 1995.
"LTM Operating EBITDA" means, as of any date, the operating profit of
INDSPEC and its consolidated subsidiaries, for the last twelve fiscal months
ending on or prior to such date (the "measurement period"), plus, to the extent
deducted in calculating such operating profit (or minus, to the extent added in
calculating such operating profit), (i) depreciation and amortization expense,
(ii) profit sharing expense and bonuses to officers, (iii) research and
development expenses (and other expenses not in excess of $1,000,000 in the
aggregate for the measurement period) incurred in connection with the New Plant;
provided, that the amounts referred to in this clause (iii) will be added back
to operating profit only with respect to expenses incurred prior to the New
Plant Start-up Date, (iv) management fees to Castle Harlan attributable to the
Castle Harlan Management Agreement (as defined in the Exchange Agreement), all
determined in accordance with GAAP and Corporation Accounting Practices applied
on a consistent basis; provided, however, that to the extent that there is a
change in Corporation Accounting Practices during the measurement period in
order to conform Corporation Accounting Practices to GAAP, then that amount of
revenue or expense arising as a result of such change in Corporation Accounting
Practices shall be added or subtracted, as the case may be, to LTM Operating
EBITDA, but only to the extent that such revenue or expense is attributable to
the measurement period.
"Net Debt" means, as of any date, (i) the sum (without duplication) of all
Debt of INDSPEC and its consolidated subsidiaries as of such date, plus all
accrued but unpaid interest thereon as of such date, plus the Working Capital
Adjustment, if any, as of such date, less (ii) the sum of (a) cash and cash
equivalents of INDSPEC and its consolidated subsidiaries as of such date, plus
(b) the aggregate amount of all payments to be received by INDSPEC upon the
exercise of any unexercised options (whether vested or unvested) as of such
date, plus (c) the amount of New Plant Capital Expenditures as of such date, all
determined in accordance with GAAP and Corporation Accounting Practices applied
on a consistent basis.
"New Plant" means INDSPEC's proposed new resorcinol production facility.
"New Plant Capital Expenditures" means the aggregate expenditures with
respect to the New Plant (including construction period interest) that are
capitalized on INDSPEC's financial statements prepared for, or as of the last
day of, the fiscal month in which the New Plant Start-up Date occurs, but only
to the extent such expenditures are required or permitted to be so capitalized
by or in accordance with GAAP and Corporation Accounting Practices applied on a
consistent basis; provided, however, that for purposes of determining the Notice
Redemption Ratio, the Threshold Redemption Ratio and the Put Offer Ratio, and
for no other purpose, the amount of New Plant Capital Expenditures shall be
subject to adjustment as follows: (i) as of the last day of the first full
fiscal month following the fiscal month in which the New Plant Start-up
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Date occurs, the amount of New Plant Capital Expenditures shall be reduced by an
amount equal to one-twelfth of the amount thereof as of the last day of the
fiscal month in which the New Plant Start-up Date occurs, and (ii) for each of
the eleven fiscal months thereafter, the amount of New Plant Capital
Expenditures shall be reduced by an additional one-twelfth of the amount thereof
as of the last day of the fiscal month in which the New Plant Start-up Date
occurs.
"New Plant Start-up Date" means the first to occur of (i) the date
following the first 30 consecutive days of production at the New Plant during
which period such facility produces not less than 90% of its nameplate capacity
or (ii) the date 120 days after the date on which the New Plant produces one
pound of commercial grade resorcinol.
"Other Liabilities" means, as of any date, the sum (without duplication) of
all liabilities (other than current liabilities, Debt and net deferred income
taxes) of INDSPEC and its consolidated subsidiaries as of such date (including,
without limitation, all environmental and other reserves and pension and post
retirement obligations), in each case, that are required to be recorded as of
such date in accordance with GAAP and Corporation Accounting Practices applied
on a consistent basis.
"Working Capital" means, as of any date, (i) current assets (excluding cash
and cash equivalents) of INDSPEC and its consolidated subsidiaries, as of such
date, less (ii) current liabilities (excluding the current portion of long-term
debt and accrued but unpaid interest thereon) of INDSPEC and its consolidated
subsidiaries, as of such date, all determined in accordance with GAAP and the
Corporation Accounting Principles applied on a consistent basis.
"Working Capital Adjustment" means, with respect to any determination of
the amount of Net Debt, the amount equal to (i) (a) the sum of the amounts of
Working Capital as of the last day of each of the four fiscal quarters preceding
the date of such determination of the amount of Net Debt, divided by (b) four,
minus (ii) the amount of Working Capital as of such date of determination of the
amount of Net Debt; provided, however, that if the amount of such difference is
less than 10% of the amount in the foregoing clause (i), the Working Capital
Adjustment shall be equal to zero.
BOARD OF DIRECTORS
Currently, INDSPEC Stockholders, voting as one class, elect the entire
Board of Directors, and may remove any director upon a vote of a majority of the
holders of INDSPEC Common Stock. INDSPEC's Board of Directors is currently
comprised of seven members. At all meetings, a majority of the entire Board of
Directors constitutes a quorum for the transaction of business, and the Board of
Directors acts by vote of a majority of the directors present at any meeting at
which a quorum is present.
The Restated Certificate provides that, prior to the Conversion Date and
subject to any rights to elect additional directors that may be granted to the
holders of any series of Preferred Stock, one-half of the Board of Directors
will be elected by the holders of the Class A Common Stock, voting as a separate
class, and one-half of the Board of Directors will be elected by the holders of
the Class B Common Stock, voting as a separate class. Except as otherwise
provided in the Restated Certificate, prior to the Conversion Date, all actions
to be taken by the Board of Directors will require the affirmative vote of the
greater of (i) five directors or (ii) a majority of the directors then in
office. Prior to the Conversion Date, Class A Directors may be removed only by
an affirmative vote of the holders of a majority of the shares of Class A Common
Stock then outstanding, and Class B Directors may be removed only by an
affirmative vote of the holders of a majority of the shares of Class B Common
Stock then outstanding and, during the interval between annual meetings of
stockholders for the election of directors, (A) any vacancy or vacancies in the
Class A Directors may, subject to applicable law, be filled by a majority vote
of the remaining Class A Directors then in office, even though less than a
quorum, and (B) any vacancy or vacancies in the Class B Directors may, subject
to applicable law, be filled by a majority vote of the remaining Class B
Directors then in office, even though less than a quorum. Any Class A Director
or Class B Director so elected to fill a vacancy will hold office for the
unexpired term in respect of which the vacancy occurred and until his successor
has been elected and qualified or until his earlier death, resignation or
removal in the manner provided by the Restated Certificate.
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Pursuant to the Restated Bylaws, prior to the Conversion Date, (i) the
Board of Directors will consist of six members, three of whom will be Class A
Directors, and three of whom will be Class B Directors and (ii) only Class A
Directors and holders of Class A Common Stock may nominate a candidate for
election as a Class A Director and only Class B Directors and holders of Class B
Common Stock may nominate a candidate for election as a Class B Director. From
and after the Conversion Date, the Restated Bylaws provide that the Board of
Directors will consist of not less than one nor more than 15 members, the exact
number of which will initially be six and will thereafter be fixed from time to
time by the Board of Directors.
The Restated Bylaws also provide that, prior to the Conversion Date, if the
Board of Directors (i) fails to approve an annual budget for the next fiscal
year at least one month prior to the beginning of such next fiscal year, (ii)
fails to approve INDSPEC's entering into or renewal of any material contract
necessary for the continued operation of any of INDSPEC's production facilities,
or (iii) by vote of at least five members of the Board of Directors, specifies
any other matter as being subject to such provision of the Restated Bylaws,
then, subject to applicable law, the number of members of the Board of Directors
will temporarily be increased by three and the vacancies created thereby will be
filled by a vote of at least five of the directors then in office. Subject to
applicable law, such temporary additional directors will serve until the Board
of Directors has resolved the issue or issues that precipitated the election of
such additional directors and thereafter the number of directors will be
restored to the number existing prior to the appointment of such temporary
additional directors.
Prior to the Conversion Date, the Restated Bylaws prohibit INDSPEC from
taking any of the following actions, and require INDSPEC to cause its
subsidiaries not to take any of the following actions, unless such action has
been authorized by INDSPEC's Board of Directors: (i) any merger or consolidation
with or into any person, or any dissolution or liquidation; (ii) the
establishment or acquisition of any entity that is not a wholly owned subsidiary
of INDSPEC; (iii) the making of any investment (other than certain specified
permitted investments) in excess of $10,000 in any entity other than a wholly
owned subsidiary of INDSPEC; (iv) entering into any line of business that is
materially different from the business conducted by INDSPEC or any of its
subsidiaries immediately prior to the Closing Date; (v) the transfer of assets
with a fair market value in excess of $1,000,000 in a single transaction or
series of related transactions (subject to certain exceptions); (vi) the
incurrence of indebtedness in excess of $1,000,000 in any single transaction or
series of related transactions (subject to certain exceptions); (vii) the
incurrence of any consensual lien upon assets securing obligations in an amount
in excess of $500,000; (viii) the issuance or sale of capital stock or any
securities that are convertible into or exchangeable for such capital stock
(other than upon the exercise of options or warrants outstanding on the Closing
Date); (ix) the declaration or payment of any dividends or distributions with
respect to, or repurchases or redemptions of, capital stock or securities
convertible into or exchangeable for, or rights to acquire such capital stock
(other than the redemption of Class A Common Stock pursuant to the Restated
Certificate); (x) the approval or amendment of INDSPEC's annual budget; the
making of any capital expenditure or expenditures not detailed in the annual
budget that (A) exceed $500,000 in any single transaction or series of related
transactions or (B) would cause total capital expenditures for the year to
exceed the total amount in the annual budget by more than 5%; (xi) entering into
or amending operating leases with respect to equipment having a value in excess
of $500,000 (excluding renewals or replacements of leases for rolling stock) in
any single transaction or series of related transactions; (xii) entering into
any new material contract or amending in any material respect any existing
material contract; (xiii) the amendment, alteration, modification or repeal of
any certificate of incorporation, bylaws or other organizational document; (xiv)
any change of the independent public accountants of INDSPEC; (xv) any change of
any material accounting policy, practice or estimates (including, without
limitation, any change in fiscal year); (xvi) any transaction between INDSPEC or
its subsidiaries, on the one hand, and any executive officer or employee of
INDSPEC or its subsidiaries on the other hand, that is outside the normal and
ordinary course of employment matters (other than pursuant to contracts in
existence on the Closing Date or contracts that have been approved by the Board
of Directors); or (xvii) the appointment or removal of any executive officers;
the increase in the compensation of, or the hiring of, any employee with a base
salary in excess of $100,000; the adoption or amendment of any employment
contract or the adoption or material amendment of any employee benefit plan; the
determination or approval of the levels of participation by, or payments to,
executive officers or other employees in any profit participation plans and
bonuses (other than
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pursuant to contracts in existence on the Closing Date or contracts that have
been approved by the Board of Directors).
AMENDMENT
Currently, INDSPEC's certificate of incorporation may be amended upon (i)
the approval of INDSPEC's Board of Directors and (ii) the affirmative vote of
the holders of a majority of the INDSPEC Common Stock then outstanding. The
Restated Certificate may be amended only upon (i) the approval of INDSPEC's
Board of Directors, (ii) the affirmative vote of holders of a majority of the
shares of Class A Common Stock and Class B Common Stock outstanding and (iii)
the affirmative vote of holders of a majority of the outstanding stock of each
class entitled to vote thereon as a class. Under the DGCL, the holders of the
outstanding shares of Class A Common Stock or Class B Common Stock will be
entitled to vote as a class upon a proposed amendment if the amendment would
increase or decrease the aggregate number of authorized shares of such class,
increase or decrease the par value of the shares of such class, or alter or
change the powers, preferences or special rights of the shares of such class so
as to affect them adversely.
The Restated Certificate and the Restated Bylaws authorize the Board of
Directors to adopt, amend or repeal INDSPEC's bylaws. Prior to the Conversion
Date, INDSPEC's bylaws may be adopted, amended or repealed by the stockholders
of INDSPEC only if the holders of a majority of the shares of Class A Common
Stock then outstanding and the holders of a majority of the shares of Class B
Common Stock then outstanding have approved such adoption, amendment or repeal.
SPECIAL MEETINGS OF STOCKHOLDERS
Currently, special meetings of INDSPEC's Stockholders may be called by its
President and must be called by the President or the Secretary upon the written
request of a majority of the directors. Under the Restated Bylaws, special
meetings may be called by INDSPEC's Chairman (if any), President, any Vice
President, the Secretary or any Assistant Secretary and must be called by any
such officer at the request in writing of a majority of its directors or at the
request in writing of stockholders owning a majority of the capital stock issued
and outstanding and entitled to vote at such meeting.
DIRECTORS' LIABILITY
The Restated Certificate contains provisions which eliminate the personal
liability of its directors for monetary damages resulting from breaches of their
fiduciary duty other than liability, to the extent provided by applicable law,
for breaches of the duty of loyalty, acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, violations
under Section 174 of the DGCL or any transaction from which the director derived
an improper personal benefit. INDSPEC believes that these provisions are
necessary to attract and retain qualified persons as directors and officers.
THE MERGER AGREEMENT
The following is a summary of certain provisions of the Merger Agreement
not summarized elsewhere in this Proxy Statement/Prospectus. The Merger
Agreement is attached as Annex II to this Proxy Statement/Prospectus and is
incorporated herein by reference. The following summary does not purport to be
complete and is qualified in its entirety by reference to the Merger Agreement.
CERTAIN REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of
INDSPEC and Roundtable relating to, among other things, the following matters
(subject, in certain cases, to specified exceptions): (i) the due organization,
existence and good standing of such party; (ii) the authorization, execution,
delivery and performance by such party of the Merger Agreement and the
enforceability of the Merger Agreement against such party; (iii) the absence of
any conflict with such party's certificate of incorporation or bylaws, or with
applicable law or certain material contracts; (iv) the absence of any
governmental or regulatory
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authorization, consent or approval required to consummate the Merger; and (v) in
the case of Roundtable, certain tax matters.
EXPENSES
Under the Merger Agreement, whether or not the Exchange Offers are
consummated, INDSPEC is obligated to pay the direct expenses of Roundtable
incurred in connection with the negotiation and preparation of the Merger
Agreement and the consummation of the transactions contemplated thereby.
AMENDMENT
The Merger Agreement may be amended by a written instrument executed by
Roundtable and INDSPEC, but only with the consent of Occidental.
TERMINATION
The Merger Agreement may be terminated on or prior to the Effective Time by
either party, but only if the Exchange Agreement is terminated. See "The
Exchange Agreement -- Termination."
THE EXCHANGE OFFERS
TERMS OF THE EXCHANGE OFFERS
Pursuant to the terms and subject to the conditions set forth in the
Exchange Agreement, not later than one business day after the Effective Date of
the Merger, Occidental is obligated to commence (the date of commencement being
the "Commencement Date") (i) an offer to exchange shares of Occidental Common
Stock for up to 8,504 shares of Class A Common Stock and (ii) an offer to
exchange shares of Occidental Common Stock for each outstanding share of Class B
Common Stock. The Exchange Offers will be made by Occidental pursuant to a
prospectus and a letter of transmittal which will be delivered to all INDSPEC
stockholders and will include all relevant information. The Exchange Offers will
expire 20 business days from the Commencement Date; provided, however, that if
any damage, destruction or other similar unplanned event (including an unplanned
event which occurs during a planned outage or maintenance) occurs that results
in the cessation of all or substantially all of the production at INDSPEC's
resorcinol production facility in Petrolia, Pennsylvania for a period that
exceeds, or is reasonably likely to exceed, 30 consecutive days, then the
Exchange Offers will be extended until the tenth business day after production
is resumed, but not beyond June 30, 1996. Promptly following the expiration of
the Exchange Offers but subject to certain conditions, Occidental will effect
the exchange of shares of Occidental Common Stock for shares of Class A Common
Stock and Class B Common Stock properly tendered and not withdrawn pursuant to
the Exchange Offers. See "The Exchange Offers -- Conditions to the Consummation
of the Exchange Offers."
The number of shares of Occidental Common Stock to be delivered in exchange
for each share of Class A Common Stock and Class B Common Stock accepted in the
Exchange Offers will be equal to (i) the quotient obtained by dividing $131
million by the total number of shares of Class A Common Stock and Class B Common
Stock outstanding or subject to issuance upon the exercise of all outstanding
warrants and vested and unvested options, determined as of the Closing Date,
divided by (ii) the Occidental Common Stock Value. If certain events with
respect to the Occidental Common Stock (including a dividend or
recapitalization) occur during the twenty consecutive trading days during which
the Occidental Common Stock Value is determined, then the Occidental Common
Stock Value will be adjusted appropriately in a manner to be determined by
Occidental and consented to by INDSPEC. Cash will be paid by Occidental in lieu
of issuing any fractional shares of Occidental Common Stock. If the Occidental
Common Stock Value is less than $15, Occidental will not be required to
consummate the Exchange Offers unless INDSPEC elects to proceed based on a
deemed Occidental Common Stock Value of $15.
Assuming that (i) the 59,047 shares of INDSPEC Common Stock outstanding or
subject to issuance as of February , 1996, remain the only shares outstanding
or subject to issuance, and (ii) the Occidental
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Common Stock Value is equal to the closing price of $ per share for
Occidental Common Stock on the New York Stock Exchange on February , 1996, if
the Closing were to occur on February , 1996, each share of Class A Common
Stock and Class B Common Stock accepted in the Exchange Offers would be
exchanged for shares of Occidental Common Stock. The Exchange Offers will
be made by Occidental pursuant to a separate prospectus and a letter of
transmittal which will be sent to all INDSPEC stockholders.
Pursuant to the Voting Agreement, certain stockholders have agreed to
tender shares of Class A Common Stock and Class B Common Stock to Occidental in
the Exchange Offers. As a result, upon consummation of the Exchange Offers,
Occidental will own up to 38,000 shares of Class B Common Stock (including up to
8,504 shares which shall have been converted from Class A Common Stock),
representing 65% of all INDSPEC shares outstanding, determined on a fully
diluted basis, and 45% of the voting power of all INDSPEC shares outstanding.
ADDITIONAL CONSIDERATION
On the Closing Date, Occidental will issue and deliver to each holder of
Retained Securities that number of shares of Occidental Common Stock determined
by multiplying (i) the number of Retained Securities held by such holder, by
(ii) the quotient obtained by dividing (a) $3 million divided by the total
number of Retained Securities held by all holders, by (b) the Occidental Common
Stock Value. Cash will be paid by Occidental in lieu of issuing fractional
shares of Occidental Common Stock. Occidental has agreed to pay the Additional
Consideration to holders of Retained Securities as compensation for the
redemption features of the Class A Common Stock. Assuming that (i) the 59,047
shares of INDSPEC Common Stock outstanding or subject to issuance as of February
, 1996, remain the only shares outstanding or subject to issuance, (ii) the
Exchange Offers are fully subscribed, and (iii) the Occidental Common Stock
Value is equal to the closing price of $ per share for Occidental Common
Stock on the New York Stock Exchange on February , 1996, if the Closing were
to occur on February , 1996, Occidental would deliver to each holder of
Retained Securities shares of Occidental Common Stock for each share
of Class A Common Stock represented by such Retained Securities. The Federal
income tax treatment of the Additional Consideration is subject to uncertainty.
See "The Exchange Offers -- Certain Federal Income Tax Consequences."
PRORATION
If more than 8,504 shares of Class A Common Stock are validly tendered and
not withdrawn in the Exchange Offers prior to the Expiration Date, then, upon
the terms and subject to the conditions set forth in the Exchange Agreement and
the applicable prospectus and letter of transmittal, Occidental will accept
8,504 shares of Class A Common Stock for exchange on a pro rata basis based on
the number of shares validly tendered by each stockholder (with the trustee for
the ESOP being treated as one stockholder for these purposes). Holders of shares
of Class A Common Stock that are not acquired by Occidental in the Exchange
Offers will receive additional consideration in accordance with the Exchange
Agreement. See "The Exchange Offers -- Additional Consideration."
TREATMENT OF VESTED OPTIONS
Holders of vested Options may participate in the Exchange Offers by
exercising such Options and tendering the shares of Class A Common Stock
received upon such exercise. Alternatively, a holder of a vested Option may
validly tender shares of Class A Common Stock by delivery of (i) a properly
completed notice of guaranteed delivery, duly executed by INDSPEC that (a) sets
forth the name and address of the tendering party, (b) sets forth the number of
shares tendered pursuant thereto, (c) indicates that (x) the tendering party is
entitled to receive shares of Class A Common Stock upon exercise of a vested
Option, and (y) INDSPEC has received a properly completed and duly executed
notice of conditional exercise, exercising such Option subject only to the
condition that Occidental accept the shares issuable thereunder in the Exchange
Offers, and directing INDSPEC to deliver such shares directly to Occidental upon
notice of acceptance thereof from Occidental, and (d) guarantees that the
certificate(s) representing the shares of INDSPEC Common Stock will be deposited
by INDSPEC with Occidental at the Closing; and (ii) a properly completed and
duly executed letter of transmittal (or manually signed facsimile thereof) and
any
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required signature guarantees, as well as all other documents required by the
letter of transmittal. The letter of transmittal used in the Exchange Offers
will permit the tendering party to indicate the priority of acceptance of the
shares it has tendered (among certificated shares and shares issuable upon
exercise of each vested Option) in the event of proration.
The Exchange Agreement provides that INDSPEC may, to the extent that it is
permitted to do so pursuant to the terms of its Indenture and Senior Credit
Facility, provide to each holder of vested Options for which the shares issuable
upon exercise thereof are accepted by Occidental in the Exchange Offers, as a
loan, the amount of the exercise price necessary to exercise such vested
Options. INDSPEC's loan to each such holder will be evidenced by a promissory
note with a 30-day maturity and an interest rate equal to the lowest rate
necessary under applicable Federal tax law to avoid the accrual of imputed
interest income thereon. INDSPEC has indicated that if it is able to make such
loans, the notice of conditional exercise that will be used will also contain a
conditional promissory note to be executed by the holder of such Options. If
INDSPEC determines not to make such loans, it may amend the relevant stock
option plans to permit the cashless exercise of the Options on terms mutually
acceptable to INDSPEC and Occidental.
CONDITIONS TO THE COMMENCEMENT OF THE EXCHANGE OFFERS
The obligation of Occidental to commence the Exchange Offers is subject to
the satisfaction or waiver, at or prior to the Commencement Date, of certain
conditions, including the following: (i) the Merger having become effective in
accordance with the Merger Agreement and all applicable laws; (ii) the accuracy,
as of the date of the Exchange Agreement and, except in certain cases, as of the
Commencement Date, of the representations and warranties of INDSPEC set forth in
the Exchange Agreement; (iii) INDSPEC's receipt of agreements, in form and
substance reasonably satisfactory to Occidental, terminating or amending certain
management, stockholder and other agreements; (iv) Occidental's receipt of
certain legal opinions; (v) the accuracy, as of the date of the Exchange
Agreement and as of the Commencement Date, of the representations and warranties
of all parties set forth in the Merger Agreement and the Voting Agreement, and
such parties' compliance with all agreements set forth therein; (vi) either (A)
holders of at least 90% of the outstanding shares of INDSPEC Common Stock having
voted in favor of, or consented to, the Merger or (B) holders of less than 10%
of the outstanding shares of INDSPEC Common Stock being eligible for appraisal
rights under the DGCL; (vii) certain directors of INDSPEC having submitted
resignations effective as of the Closing Date; (viii) the average of the last
sales prices of Occidental Common Stock on the New York Stock Exchange on each
of the 20 consecutive trading days ending on the fifth trading day prior to the
Commencement Date being at least $15, or INDSPEC's election to consummate the
transactions contemplated by the Exchange Agreement based on a deemed Occidental
Common Stock Value of $15; (ix) the absence of any requirement that Occidental
consolidate in Occidental's consolidated financial statements the results of
operations of INDSPEC or any of its subsidiaries after giving effect to the
Exchange Offers; (x) Occidental's receipt from INDSPEC of audited financial
statements for the period ended September 30, 1995; (xi) the consummation of the
transactions contemplated by INDSPEC's Management Agreement with Southern
Ionics, Inc., dated April 1, 1995; (xii) Occidental's receipt of comfort letters
from INDSPEC's independent public accountants; (xiii) the absence of any ongoing
damage or similar unplanned event that results in the cessation of all or
substantially all of the production at INDSPEC's resorcinol production facility
in Petrolia, Pennsylvania for a period that exceeds, or is reasonably likely to
exceed, 30 days; (xiv) the amendment of INDSPEC'S incentive stock option plans
to provide that INDSPEC's Board of Directors will be authorized, as of the
Closing Date, to administer such plans; (xv) the amendment, effective as of the
Closing Date, of the certificates of incorporation and bylaws of INDSPEC's
subsidiaries, to include provisions that are the same, or substantially the
same, as the provisions in the Restated Certificate and Restated Bylaws, other
than provisions related to capitalization; (xvi) the completion of all filings
required to be made with, and the receipt of all consents, approvals, permits
and authorizations required to be obtained from, government authorities; (xvii)
the effectiveness under the Securities Act of the registration statements
relating to the Occidental Common Stock to be issued in the Transactions; the
registration of the Occidental Common Stock covered by such registration
statements under applicable state securities laws; the absence of any order
suspending the effectiveness of such registration statements or any
post-effective amendments thereto; and the absence of any pending or threatened
proceeding for the issuance of such an order by the Commission or any
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securities authority in any jurisdiction; (xviii) the termination or expiration
of the waiting period (and any extension thereof) applicable to the consummation
of the Exchange Offers under the HSR Act; (xix) the absence of any temporary
restraining order, preliminary or permanent injunction or other order issued by
any governmental authority preventing the Merger or the commencement or
consummation of the Exchange Offers and the absence of any pending or threatened
material litigation that challenges the validity, legality or enforceability of
the Exchange Agreement, the Merger Agreement, the Voting Agreement or the
Enabling Agreement or the transactions contemplated thereby; (xx) the execution
and delivery by certain INDSPEC employees of an employment agreement or
amendment to such employee's existing employment agreement (see "Management of
INDSPEC -- Employment and Other Agreements"); and (xxi) the amendment of
INDSPEC's Senior Credit Facility or waiver of certain provisions thereof so that
the Transactions do not constitute a default thereunder.
CONDITIONS TO THE CONSUMMATION OF THE EXCHANGE OFFERS
The obligation of Occidental to consummate the Exchange Offers will be
subject to the satisfaction or waiver, at or prior to the Closing Date, of
certain conditions, including the following: (i) all of the conditions to the
commencement of the Exchange Offers (but with references therein to the
Commencement Date or the Effective Date being deemed to be references to the
Closing Date); and (ii) the absence, during the period beginning on the first
day of the 20 consecutive trading days ending on the fifth trading day prior to
the Closing Date (the "Valuation Period") and ending on the Closing Date, of (A)
any outbreak or escalation of hostilities involving the United States or (B) any
material adverse change in the financial markets of the United States, including
any general suspension of trading on the New York Stock Exchange or any
declaration of any banking moratorium by any of the federal, California or New
York government authorities, the effect of any of which events set forth in
either clause (A) or (B) is to make it, in the reasonable good faith judgment of
Occidental, impracticable to determine the Occidental Common Stock Value on a
fair basis because of general disruption of trading in equity securities listed
on the New York Stock Exchange. If an event specified in the foregoing clause
(ii) occurs, the Valuation Period will be suspended and will recommence the day
after such event ceases to have the effects described in the preceding sentence.
REGULATORY APPROVALS REQUIRED
The Exchange Offers are subject to the requirements of the HSR Act, and may
not be consummated until required information and materials have been furnished
to the Antitrust Division of the Department of Justice and the FTC and certain
waiting periods have expired or been terminated. INDSPEC and Occidental filed
the required information and materials with the Antitrust Division and the FTC,
and the waiting period expired on January 17, 1996.
The Antitrust Division and the FTC frequently scrutinize the legality under
the antitrust laws of transactions such as the Exchange Offers. Moreover, the
expiration of the HSR Act waiting period does not preclude the Antitrust
Division or the FTC from challenging the Exchange Offers on antitrust grounds.
Accordingly, at any time before or after the Closing Date, either the Antitrust
Division or the FTC could take such action under the antitrust laws as it deems
necessary or desirable in the public interest, or certain other persons could
take action under the antitrust laws, including seeking to enjoin the Exchange
Offers.
The Exchange Offers are also subject to the Takeover Disclosure Law of the
State of Pennsylvania, pursuant to which Occidental has filed a notice with the
Pennsylvania Securities Commission.
MANAGEMENT OF INDSPEC AFTER THE EXCHANGE OFFERS
Upon consummation of the Exchange Offers, it is expected that INDSPEC's
current officers will remain in their current positions. Subsequent to the
Closing Date, it is expected that three of INDSPEC's current directors (Messrs.
Spinola, Danner and Scorsone) will remain as Class A Directors, and the Class B
Directors will resign. Occidental, as the only holder of Class B Common Stock,
will be entitled to elect all of the Class B Directors. See "Management of
INDSPEC."
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NO APPRAISAL RIGHTS
No appraisal rights will be available to INDSPEC stockholders in connection
with the Exchange Offers.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain Federal income tax consequences of
the Exchange Offers to holders of INDSPEC Common Stock and is based on the
Federal income tax law now in effect, which is subject to change, possibly
retroactively. This summary does not discuss all aspects of Federal income
taxation which may be important to particular holders of INDSPEC Common Stock in
light of their individual investment circumstances, including holders who hold,
directly or indirectly, 10% or more of INDSPEC Common Stock, holders who
acquired their INDSPEC Common Stock pursuant to the exercise of Options or
otherwise as compensation, and certain types of holders subject to special tax
rules (e.g., financial institutions, broker-dealers, insurance companies,
tax-exempt organizations, and foreign taxpayers). In addition, this summary does
not address state, local or foreign tax consequences, nor does it address
specific tax consequences that may be applicable to holders of Options or
Warrants. Stockholders are urged to consult their tax advisors regarding the
specific Federal, state, local, and foreign income and other tax consequences of
the Exchange Offers.
The receipt of Occidental Common Stock in exchange for shares of INDSPEC
Class A Common Stock or Class B Common Stock pursuant to the Exchange Offers
will be a taxable transaction for Federal income tax purposes. In general, a
holder of INDSPEC Common Stock will recognize gain or loss for Federal income
tax purposes equal to the difference between (i) the sum of the fair market
value of the Occidental Common Stock received and any cash received in lieu of a
fractional share, and (ii) the holder's adjusted basis in the shares exchanged.
Assuming the shares exchanged constitute capital assets in the hands of the
holder, such gain or loss will be capital gain or loss and will be long-term
gain or loss if the holder has held the shares for more than one year at the
time of the sale. A holder who receives shares of Occidental Common Stock in
exchange for INDSPEC Common Stock will have a basis in the shares received equal
to the fair market value of such shares on the Closing Date, and the holding
period of such shares will begin on the day immediately following the Closing
Date.
The Federal income tax consequences of the receipt of shares of Occidental
Common Stock by holders of Retained Stock as Additional Consideration is subject
to uncertainty, particularly with respect to both the timing of income
recognition and the character of the income. The legal authorities that are
potentially applicable to the treatment of the receipt of the Additional
Consideration do not address facts and circumstances sufficiently analogous to
those pertaining to the Additional Consideration to provide definitive guidance
regarding the most appropriate treatment of the receipt of the Additional
Consideration. Accordingly, it is not possible for counsel to render an opinion
regarding the tax treatment that will apply to the Additional Consideration.
There is a substantial risk that the Internal Revenue Service will contend that
the receipt of shares of Occidental Common Stock may be treated as a fee for
consenting to the Merger and thus would, upon receipt, be includible in income
as ordinary income in an amount equal to the sum of the fair market value of
such shares and any cash received in lieu of fractional shares. There may,
however, be alternative tax consequences of the receipt of shares of Occidental
Common Stock as Additional Consideration. Holders of Retained Stock should
consult their tax advisors regarding such alternative tax consequences,
including whether the receipt of such shares (i) would give rise to capital gain
rather than ordinary income even if the receipt is treated as a payment for
consent, (ii) would be treated as exchanged-for shares of Class A Common Stock,
and (iii) would not be currently includible in income but would be treated as
part of an open transaction that would close (i.e., be subject to tax) upon the
sale, disposition or redemption of such shares, or upon the lapse of
Occidental's rights pursuant to the Restated Certificate to effectuate, directly
or indirectly, a Redemption.
ACCOUNTING TREATMENT
Upon consummation of the Exchange Offers, Occidental intends to account for
its interest in INDSPEC using the equity method until such time as it owns more
than 50% of the aggregate voting power of both
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classes of INDSPEC common stock, at which time Occidental intends to account for
its interest using the purchase method of accounting for business combinations.
ESOP PARTICIPATION
Pursuant to the terms of the ESOP, the trustee for the ESOP will determine
whether or not to tender the ESOP's shares of Class A Common Stock in the
Exchange Offers. Participants in the ESOP will not be entitled to direct the
trustee to tender such shares. The trustee for the ESOP will be treated as one
stockholder for purposes of proration in the Exchange Offers. See "The Exchange
Offers -- Proration."
THE EXCHANGE AGREEMENT
The following is a summary of certain provisions of the Exchange Agreement
not summarized elsewhere in this Proxy Statement/Prospectus. A copy of the
Exchange Agreement is attached hereto as Annex I and incorporated herein by
reference. The following summary is qualified in its entirety by reference to
the full text of the Exchange Agreement.
REPRESENTATIONS AND WARRANTIES
The Exchange Agreement contains representations and warranties of INDSPEC
relating to, among other things, the following matters (subject, in certain
cases, to specified exceptions): (i) the due organization, existence and good
standing of INDSPEC and its subsidiaries; (ii) financial statements and reports
of INDSPEC and INDSPEC Chemical Corporation; (iii) the absence of certain
changes or events subsequent to June 30, 1995; (iv) INDSPEC's capitalization;
(v) the authorization, execution, delivery and performance by INDSPEC of the
Exchange Agreement and the enforceability of the Exchange Agreement against
INDSPEC; (vi) the absence of any conflict with the certificate of incorporation,
bylaws or other organizational document of INDSPEC or its subsidiaries or with
applicable law or certain material contracts and the absence of any material
liens, charges or encumbrances that would arise as a result of the transactions
contemplated by the Exchange Agreement; (vii) the absence of any governmental or
regulatory authorization, consent or approval required to consummate the
Transactions; (viii) the effectiveness of governmental approvals, consents and
permits necessary for INDSPEC's business; (ix) the absence of certain actions,
suits and proceedings; (x) material contracts; (xi) properties and assets; (xii)
patents, licenses, trademarks, service marks and trade names; (xiii) employee
relations; (xiv) compliance with environmental laws; (xv) certain tax matters;
(xvi) employee benefits; (xvii) the absence of brokers and finders; (xviii)
insurance coverage; (xix) compliance with applicable laws; and (xx) the
non-applicability of certain regulations.
The Exchange Agreement also includes representations and warranties of
Occidental relating to, among other things, the following matters (subject, in
certain cases, to specified exceptions): (i) the due organization, existence and
good standing of Occidental; (ii) Occidental's capitalization; (iii) the
authorization, execution, delivery and performance by Occidental of the Exchange
Agreement and the enforceability of the Exchange Agreement against Occidental;
(iv) the absence of any conflict with the certificate of incorporation or bylaws
of Occidental or with applicable law or certain material contracts; (v) the
absence of any governmental or regulatory authorization, consent or approval
required to consummate the Transactions; (vi) the absence of certain actions,
suits and proceedings; (vii) the availability to Occidental of sufficient funds
to satisfy any change of control payments required under INDSPEC's Indenture;
(viii) the absence of brokers and finders; (ix) financial statements and reports
of Occidental; and (x) Occidental's investment intent with respect to the Class
A Common Stock and Class B Common Stock to be acquired by it in the Exchange
Offers.
CONDUCT OF BUSINESS
Upon the terms and subject to the conditions of the Exchange Agreement,
INDSPEC has agreed that during the period from the date of the Exchange
Agreement up to and including the Closing Date, unless otherwise specified,
INDSPEC will conduct its business only in the ordinary course and consistent
with past practice, and will use its best efforts to preserve intact its
business organization and material assets and
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maintain the rights, franchises and business and customer relations used in or
necessary to conduct its business in the ordinary course consistent with past
practice. In addition, during the period from the date of the Exchange Agreement
to the Closing Date, INDSPEC has agreed that it will not and will not permit any
of its subsidiaries to: (i) declare, set aside or pay any dividend or other
distribution with respect to any of its outstanding capital stock or the capital
stock of any of its subsidiaries other than wholly owned subsidiaries (subject
to certain exceptions) or make any redemption, purchase or other acquisition of
such capital stock; (ii) split, combine or reclassify any of its outstanding
capital stock or issue or authorize any issuance of any other securities in
substitution for shares of its outstanding capital stock other than by reason of
any exercise of certain Options; (iii) issue or sell its capital stock or
authorize any such action or issue or grant any options, warrants or other
rights to subscribe for, purchase or otherwise acquire any of its capital stock
or the capital stock of its subsidiaries; (iv) change its accounting methods,
principles or practices in a way materially affecting its assets, liabilities or
business, except as may be required by a change in generally accepted accounting
principles; (v) increase the compensation payable or to become payable to
executive officers or employees; (vi) grant any severance or termination pay to,
or enter into any employment or severance agreement with, any director,
executive officer or employee; or (vii) establish, adopt, enter into or amend in
any material respect, or take action to accelerate any rights or benefits under,
any stock option plan or agreement, employee benefit plan, agreement or policy,
except as specifically contemplated by the Exchange Agreement.
NO SOLICITATION OF ACQUISITION PROPOSALS
INDSPEC has agreed that it will not, and will not permit any of its
subsidiaries, affiliates or any other person acting for or on behalf of any of
them to solicit, or entertain offers from, negotiate with, or in any manner
discuss, encourage, recommend or agree to any proposal relating to (i) the sale
of the stock or assets of INDSPEC or any of its subsidiaries or any interest
therein, (ii) the merger, consolidation or other combination of INDSPEC or any
of its subsidiaries with any entity, or (iii) the liquidation, dissolution or
reorganization of INDSPEC or any of its subsidiaries, except as specifically
contemplated by the Exchange Agreement. In addition, INDSPEC has agreed that it
will not, and will not permit any of its subsidiaries, affiliates or any other
person acting for or on behalf of any of them to furnish or cause to be
furnished any information with respect to INDSPEC or any of its subsidiaries to
any person (other than Occidental and its employees and agents). Notwithstanding
the foregoing, if the Board of Directors of INDSPEC is advised by counsel in
writing that its fiduciary duties require it to take certain actions with
respect to any proposal, INDSPEC may take such actions. INDSPEC is obligated to
deliver to Occidental copies of all communications received from or made to any
person who has made any such proposal within one day after the Chief Executive
Officer of INDSPEC is notified thereof.
EXPENSES
Whether or not the Exchange Offers are consummated or the Exchange
Agreement is terminated, Occidental and INDSPEC will each pay their respective
costs and expenses incurred in connection with the negotiation and preparation
of the Exchange Agreement and the consummation of the transactions contemplated
thereby; provided, that printing and mailing fees associated with the proxy
statement and registration statements prepared in connection therewith and the
prospectuses included therein (including this Proxy Statement/Prospectus) and
fees incurred in connection with the preparation of audited consolidated
financial statements of INDSPEC and its subsidiaries for the 12-month period
ended September 30, 1995 will be paid equally by Occidental and INDSPEC.
Notwithstanding the foregoing, if the Exchange Offers are consummated, the fees
of Morgan Stanley and the fees and expenses of Castle Harlan will be paid by
Occidental.
REGISTRATION
The Exchange Agreement obligates Occidental to file with the Commission, as
soon as practicable after the date of the Exchange Agreement, (i) a registration
statement under the Securities Act relating to the shares of Occidental Common
Stock issuable upon the redemption of the Class A Common Stock, and (ii) a
registration statement under the Securities Act relating to the shares of
Occidental Common Stock issuable
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upon consummation of the Exchange Offers. INDSPEC is obligated to provide
Occidental with all information concerning INDSPEC as Occidental may reasonably
request in connection with the preparation of such registration statements.
INDEMNIFICATION AND INSURANCE
Occidental has agreed that all rights to indemnification and exculpation
from liability for acts or omissions occurring prior to the Closing in existence
as of the date of the Exchange Agreement in favor of current or former
directors, officers or employees of INDSPEC and its subsidiaries, as provided in
their respective certificates of incorporation or bylaws or in indemnification
agreements to which they are a party, will survive the Closing Date and will
continue in full force and effect in accordance with their respective terms for
a period of not less than six years from the Closing Date. Occidental has also
agreed to cause INDSPEC to maintain, for a period of not less than six years
after the Closing Date, directors and officers' insurance and indemnification
policies for INDSPEC.
AMENDMENT
The Exchange Agreement may be amended only by a written instrument executed
by Occidental and INDSPEC.
TERMINATION
The Exchange Agreement may be terminated on or prior to the Closing Date
(i) by mutual written consent of Occidental and INDSPEC or (ii) at the election
of Occidental or INDSPEC if the Effective Date has not occurred by March 31,
1996 or if the Closing Date has not occurred by June 30, 1996, unless the
failure to consummate the Merger or the Exchange Offers, as the case may be, is
the result of a willful breach of the Exchange Agreement by the party seeking to
terminate the Exchange Agreement.
THE VOTING AGREEMENT
The following is a summary of the material provisions of the Voting
Agreement, which is attached as Annex V to this Proxy Statement/Prospectus and
is incorporated herein by reference. The following summary does not purport to
be complete and is qualified in its entirety by reference to the Voting
Agreement.
The Voting Agreement provides, among other things, as follows: (i) CHPII
and the other Roundtable stockholders (collectively, the "Roundtable Group")
will execute a written consent with respect to all of the shares of Roundtable
Common Stock held by them in favor of the adoption and approval of the Merger
Agreement; (ii) while the Voting Agreement is in effect, at any meeting of the
INDSPEC Stockholders, and in any action by written consent of the INDSPEC
Stockholders, the Stockholders that are parties to the Voting Agreement will
vote all of their shares of INDSPEC Common Stock (A) in favor of any proposal
for the adoption or approval of the Merger Agreement and (B) against any
proposal relating to (x) the sale of the stock or assets of INDSPEC or any
interest therein, (y) the merger, consolidation or other combination of INDSPEC
with any person, or (z) the liquidation, dissolution or reorganization of
INDSPEC, except as specifically contemplated by the Exchange Agreement.
As of the date of this Proxy Statement/Prospectus, the parties to the
Voting Agreement own 31,952 shares of INDSPEC Common Stock, representing
approximately 68% of the outstanding voting shares of INDSPEC. The vote of the
parties to the Voting Agreement in accordance therewith would be sufficient to
approve the Merger Agreement without any action on the part of any other
Stockholder.
Pursuant to the Voting Agreement, (i) each member of the Roundtable Group
has also agreed to tender to Occidental in the Exchange Offers (and not
withdraw) his shares of Class B Common Stock, and (ii) subject to the
termination or waiver of the Stockholders Agreement between INDSPEC Chemical
Corporation and certain other parties named therein (the "Stockholders
Agreement"), Mr. Danner and Mr. Lee have agreed to tender to Occidental in the
Exchange Offers (and not withdraw) their shares of Class A Common Stock.
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CHPII and the other Stockholders party to the Voting Agreement, as well as
the Roundtable stockholders party thereto, have agreed that they will not, and
will not permit any of their subsidiaries, affiliates, or any person acting for
or on behalf of any of them to, solicit, entertain offers from, negotiate with,
or in any manner discuss, encourage, recommend or agree to any proposal relating
to (a) the sale of the stock or assets of Roundtable, INDSPEC or any of their
subsidiaries or any interest therein, (b) the merger, consolidation or other
combination of Roundtable, INDSPEC or any of their subsidiaries with any person,
or (c) the liquidation, dissolution or reorganization of Roundtable, INDSPEC or
any of their subsidiaries, except as specifically contemplated by the Exchange
Agreement and the Merger Agreement. CHPII and the other Stockholders party to
the Voting Agreement, as well as the Roundtable stockholders party thereto, have
also agreed that they will not, and will not permit any of their subsidiaries,
affiliates, or any person acting for or on behalf of any of them to, furnish or
cause to be furnished any information with respect to Roundtable, INDSPEC or any
of their subsidiaries to any person (other than Occidental and its employees and
agents).
THE ENABLING AGREEMENT
The following is a summary of certain provisions of the Enabling Agreement
by and between INDSPEC and Occidental, which is attached as Annex VI to this
Proxy Statement/Prospectus and is incorporated herein by reference. The
following summary does not purport to be complete and is qualified in its
entirety by reference to the Enabling Agreement.
PUT OFFER
Within five business days after the date on which INDSPEC's Net Debt is
less than $80 million (or such greater amount as may be determined after the
Closing Date by the Board of Directors), INDSPEC is obligated to give written
notice thereof to Occidental (the "Debt Notice"). As soon as practicable after
the later of (i) the third anniversary of the Closing Date or (ii) the date on
which Occidental receives the Debt Notice (such later date being the "Trigger
Date"), Occidental is obligated to use commercially reasonable efforts to (A)
prepare and file a registration statement (the "Put Offer Registration
Statement") under the Securities Act relating to the Put Offer and (B) cause the
Put Offer Registration Statement to become effective as soon as practicable
after its filing; provided, however, that Occidental may delay such filing or
effectiveness for a valid business purpose. As soon as practicable after the Put
Offer Registration Statement has been declared effective, Occidental is
obligated to make an offer (the "Put Offer") to the holders of shares of Class A
Common Stock to exchange all or a portion of such shares for that number of
shares of Occidental Common Stock equal to the number of shares of Class A
Common Stock so exchanged, multiplied by the Put Offer Ratio (as defined below).
In lieu of any fractional share of Occidental Common Stock that would otherwise
be issuable upon exchange of shares of Class A Common Stock pursuant to the Put
Offer, the holder thereof will be entitled to cash representing such fractional
shares.
The "Put Offer Ratio" is equal to (i) (a) an amount equal to (x) the EBITDA
Multiple multiplied by the LTM Operating EBITDA, minus (y) Net Debt plus Other
Liabilities, in each case, (1) calculated as of the last day of the fiscal month
immediately preceding the fiscal month in which the exchange date occurs or (2)
if the Put Offer Registration Statement has not been declared effective within
120 days after the Trigger Date, and such amount would be greater, calculated as
of the last day of the fiscal month in which the Trigger Date occurred, divided
by (b) the aggregate number of shares of Class A Common Stock and Class B Common
Stock outstanding on the exchange date, determined on a fully diluted basis,
divided by (ii) the average of the closing prices of Occidental Common Stock on
the New York Stock Exchange on the 20 consecutive trading days immediately
preceding the fifth trading day next preceding the exchange date (subject to
adjustment for certain events, including a dividend on, or subdivision,
reclassification, combination or other recapitalization affecting, the
Occidental Common Stock). See "The Restated Certificate and Restated
Bylaws -- Redemption of Class A Common Stock" for definitions of certain terms
used to determine the Put Offer Ratio.
If a sufficient number of shares of Class A Common Stock are tendered
pursuant to the Put Offer, all of the outstanding shares of Class A Common Stock
may be redeemed pursuant to the Threshold Redemption in
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accordance with the Restated Certificate, and Occidental may terminate the Put
Offer. See "The Restated Certificate and Restated Bylaws -- Redemption of Class
A Common Stock."
OBLIGATION TO SELL OCCIDENTAL COMMON STOCK
If INDSPEC redeems the Class A Common Stock in accordance with the Restated
Certificate, Occidental will sell to INDSPEC such number of shares of Occidental
Common Stock as INDSPEC is obligated to deliver to holders of Class A Common
Stock in satisfaction of its redemption obligations. The purchase price for each
share of Occidental Common Stock so purchased will be the price of Occidental
Common Stock used to determine the number of shares of Occidental Common Stock
exchanged for Class A Common Stock pursuant to the redemption. See "The Restated
Certificate and Restated Bylaws -- Redemption of Class A Common Stock."
TAG-ALONG RIGHTS
Occidental will not, and will not permit any of its affiliates subject to
its control to, sell any shares of Class A Common Stock or Class B Common Stock
unless adequate provision is made in connection therewith so that all holders of
Class A Common Stock have the right (the "Tag-Along Right") to participate in
such sale on substantially the same terms, based on the number of shares owned
by each other stockholder. The Tag-Along Rights will not apply to (i) any sale
of shares solely among Occidental and those of its affiliates subject to its
control, (ii) any sale of shares to the public pursuant to an effective
registration statement under the Securities Act or (iii) any sale of shares that
has been approved by the affirmative vote of the greater of (A) five members of
INDSPEC's Board of Directors or (B) a majority of INDSPEC's directors then in
office.
The Tag-Along Rights will terminate upon the earlier to occur of (i) the
consummation of the Put Offer or the redemption of Class A Common Stock or (ii)
the date on which the market value of outstanding shares of Class A Common Stock
and Class B Common Stock (or any capital stock of INDSPEC issued to holders of
INDSPEC common stock) that have been effectively registered under the Securities
Act and disposed of in accordance with a registration statement or statements
under the Securities Act covering such shares equals or exceeds $50 million.
ENVIRONMENTAL MATTERS
INDSPEC has agreed that, not later than 30 months after the Closing Date,
it will complete certain tasks related to environmental matters (the
"Environmental Tasks"). At any time, or from time to time, on or after the first
anniversary of the Closing Date, Occidental may perform a review and audit of
INDSPEC properties and facilities in order to determine (i) INDSPEC's compliance
with all environmental laws and (ii) whether or not the Environmental Tasks have
been completed. If additional actions are required in order for INDSPEC to
comply with environmental laws or complete the Environmental Tasks, INDSPEC will
promptly take all such required actions, and will reserve or increase reserves
to the extent necessary to reflect on all balance sheets prepared as of any
subsequent date, (i) the aggregate amount of expected expenditures (excluding
salaries, wages, employee benefits, utilities, and recurring repairs and
maintenance to equipment caused by ordinary wear and tear, and any other similar
allocation of overhead) required in order for INDSPEC to take the actions
specified less (ii) the aggregate amount of claims for indemnification,
contribution or other recovery against third parties to the extent such recovery
could be reflected on INDSPEC's balance sheet as an asset in accordance with
GAAP. In preparing any subsequent income statement, however, INDSPEC's operating
income will not be reduced by the amount of such expenditures. Disputes between
Occidental and INDSPEC as to such matters will be settled by an independent
environmental consultant.
FUNDING OBLIGATIONS
INDSPEC has agreed to use commercially reasonable efforts to keep available
or obtain sufficient funds to (i) make payments required by law to satisfy
claims of Stockholders who have the right to appraisal of and
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payment for their shares of INDSPEC Common Stock pursuant to the DGCL as a
result of the Merger ("Dissenters' Rights Obligations"), and (ii) satisfy
obligations of INDSPEC in respect of notes tendered to INDSPEC pursuant to a
change of control offer made by INDSPEC pursuant to its Indenture ("Change of
Control Obligations" and, together with Dissenters' Rights Obligations, the
"Funding Obligations"). If, notwithstanding compliance with the foregoing
sentence, INDSPEC does not have sufficient funds to satisfy the Funding
Obligations, Occidental is obligated to provide INDSPEC with funds in an amount
sufficient to enable INDSPEC to satisfy all Funding Obligations for which
INDSPEC has timely notified Occidental. With respect to Dissenters' Rights
Obligations, (i) Occidental will lend funds to INDSPEC pursuant to a fully
amortizing promissory note with an annual interest rate of 8% and the shortest
practicable maturity but not greater than five years and (ii) to the extent that
INDSPEC cannot borrow the full amount of any funds necessary to satisfy the
Dissenters' Rights Obligations, Occidental will purchase preferred stock of
INDSPEC. With respect to Change of Control Obligations, Occidental will lend
funds to INDSPEC pursuant to a promissory note with substantially the same terms
as the notes issued pursuant to the Indenture or, at Occidental's option and if
the Indenture permits, by purchasing from INDSPEC the notes tendered to INDSPEC
pursuant to the change of control offer.
TREATMENT OF INCENTIVE STOCK OPTIONS
After consummation of the Put Offer or the redemption of Class A Common
Stock, INDSPEC and Occidental will convert outstanding INDSPEC stock options
into, or replace such options with, options to purchase Occidental Common Stock
in accordance with Section 424(a) of the Internal Revenue Code of 1986, as
amended (the "Code").
OTHER COVENANTS
In addition to the foregoing provisions, the Enabling Agreement contains
covenants relating to: (i) INDSPEC's provision of certain financial information
to Occidental; (ii) INDSPEC's provision to Occidental of access to INDSPEC's
books, records and properties; (iii) INDSPEC's performance of certain tasks with
respect to environmental matters; (iv) a prohibition against share repurchases
by INDSPEC without Occidental's prior written consent; (v) INDSPEC's hiring of
three additional employees (currently expected to be mid-level managers)
nominated by Occidental, subject to INDSPEC's right to accept, reject or
terminate any such employees; and (vi) the sharing of technological information.
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BUSINESS OF INDSPEC
INDSPEC
INDSPEC was formed as a holding company on October 25, 1993. INDSPEC
Chemical Corporation, a Delaware corporation ("Chemical"), is the operating
subsidiary of INDSPEC. Chemical was formed on October 25, 1993 under the name
Specialty Acquisition Sub, Inc. and after a series of transactions (the "1993
Transactions") succeeded to, and now operates, the business previously operated
by INDSPEC Chemical Corporation ("Predecessor"), and was renamed INDSPEC
Chemical Corporation. Chemical is a wholly owned subsidiary of INDSPEC
Technologies, Ltd., a Pennsylvania business trust (the "Business Trust"), which
is in turn 100% owned by INDSPEC. Predecessor was formed in 1988 by management
and an investor group to acquire in a leveraged transaction (the "Original
Acquisition") the business of the Industrial Specialty Chemicals division of
Koppers Company, Inc., now known as Beazer East, Inc. ("Koppers" or "BEI").
Throughout this Proxy Statement/Prospectus, the term "INDSPEC" refers to INDSPEC
and its subsidiaries, unless the context otherwise requires, and is also used to
include the operations of Predecessor, where appropriate, unless such inclusion
would be confusing. Unless otherwise indicated, a reference herein to a
particular year relates to the fiscal year of INDSPEC ended on March 31 of the
referenced year.
INDSPEC is the largest producer of resorcinol in the world and the sole
commercial producer of resorcinol in the United States. Resorcinol is a chemical
used primarily as a bonding and stiffening agent in the manufacture of tires and
tread rubber. In addition, resorcinol is used in the manufacture of high
performance wood adhesives, ultraviolet light stabilizers, sunscreens,
dyestuffs, pharmaceuticals, agrichemicals, carbonless paper and fire retardant
plastic additives.
During the calendar year ended December 31, 1994, INDSPEC supplied
approximately 90% of the resorcinol sold in the United States. Similar
information with respect to calendar year ended December 31, 1995 is not yet
available. In addition, INDSPEC is a leading supplier of resorcinol and
resorcinol-based products in Europe and Asia. Resorcinol and resorcinol-based
products accounted for approximately $112.4 million, or 96%, of the net sales of
INDSPEC for the twelve months ended March 31, 1995.
PRODUCTS
RESORCINOL AND RESORCINOL-BASED PRODUCTS
Resorcinol and resorcinol-based products are used primarily in the
manufacture of tires, in the wood products industry and in the manufacture of
specialty chemicals. Resorcinol and resorcinol-based products accounted for 92%,
95%, and 96% of INDSPEC's net operating revenues (on a combined basis) in 1993,
1994, and 1995, respectively.
Tire and Rubber. Management believes that all manufacturers of automobile
tires use resorcinol in the manufacturing process, primarily as a high
performance adhesive to bond reinforcing fabrics to rubber. In 1993, 1994, and
1995, approximately 57%, 56% and 54%, respectively, of INDSPEC's net sales were
made directly or indirectly to tire and rubber manufacturers.
The resorcinol-based adhesive system was developed in the early 1940's when
nylon began to be used as a tire cord fabric. Fabric tire cords were dipped into
a resorcinol-formaldehyde latex resin to apply a coating to enhance adhesion of
the fabric to the rubber. Over the years INDSPEC has developed various
formulations of resorcinol-based resins that are compatible with various tire
cord fabrics. Rayon, nylon, fiberglass, aramid and polyester tire cords have all
been successfully bonded to rubber using resorcinol.
A resorcinol-based system also is used as a bonding agent in steel cord
radial tires. Resorcinol or resorcinol resins are incorporated directly into the
tire's rubber compound to enhance adhesion of the brass plated steel cord to the
rubber. Production of steel cord radial tires requires more resorcinol per tire
than synthetic fiber cord tires. In the United States and Europe, essentially
all tires are now steel cord radials; however, in much of the rest of the world,
a large percentage of tires are still produced using older technologies which
require somewhat less resorcinol as a bonding agent.
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The resorcinol-based system for bonding steel cords to rubber competes with
a cobalt-based system. The cobalt-based technology is used predominantly by four
major tire manufacturers outside the United States. Management believes that
INDSPEC's resorcinol resins will enhance the performance of steel cord radial
tires made with the cobalt-based system if the formulations for bonding the
steel cord to rubber are adjusted to include a resorcinol resin. Adhesives
formulated with resorcinol resins also are used in other fiber-reinforced rubber
mechanical goods such as fabricated belting, rubberized hose and rubberized
textile sheets.
Wood Products. The wood products industry uses resorcinol-based adhesives
primarily for specialty applications demanding the following characteristics:
structural integrity under extreme conditions, moderate temperature curing,
waterproof qualities or resistance to fungus. Examples of applications are the
production of laminated structural beams, wooden "I" beams, marine wood
products, specialty laminations (such as for sports equipment), scarfed or
finger-jointed structural lumber and laminated arches. The uses of resorcinol-
based resins in the wood products industry have historically been limited to
high performance wood products due to competition from lower cost adhesives,
although INDSPEC's research and development laboratory has developed new
formulations to permit faster gluing times and the use of less expensive types
of woods for the manufacture of linear veneer lumber ("LVL") and oriented strand
board. INDSPEC believes that the relatively high cost of lumber offers a
significant opportunity for the use of resorcinol in these applications. A
significant new use for resorcinol was developed over the past two years as
INDSPEC began providing resorcinol to major manufacturers of oriented strand
board to activate adhesives with resorcinol. Approximately 16% of INDSPEC's net
sales were to the wood products industry for the twelve months ended March 31,
1995.
Specialty Chemicals. Resorcinol is also used as a chemical intermediate in
the manufacture of specialty chemicals, such as ultraviolet light screening
agents for the protection of plastics and in some suntanning lotions. In
addition, resorcinol serves as a chemical intermediate in the production of
dyestuffs, pharmaceuticals, reprographic chemicals, fire retardant plastics,
fungicidal creams and lotions, agricultural chemicals and herbicides, explosive
primers, antioxidants, chain extenders for urethane elastomers and as a
treatment to improve the mechanical and chemical resistance of papier-mache
fabrics. In all, the use of resorcinol as a chemical intermediate accounted for
approximately 26% of INDSPEC's net sales for the twelve months ended March 31,
1995.
BY-PRODUCT SODIUM SULFITE AND SALTCAKE
INDSPEC produces sodium sulfite and saltcake as by-products of resorcinol.
The primary application of by-product sulfite is in the pulping and bleaching of
paper, primarily corrugated packaging materials. Saltcake is primarily used in
the paper and glass industries. It is employed as an agent for reducing wood
chips in the pulping process to produce kraft pulp and paper which is
principally used for packaging materials. Saltcake is also used in the glass
industry as a chemical reagent in the manufacture of glass. Because several of
INDSPEC's customers for by-product sodium sulfite in the paper industry switched
to processing recycled paper and because the price of caustic soda, a component
of many competing products (including synthetic sodium sulfite), was low
throughout calendar 1994 and year to date 1995, INDSPEC has experienced
difficulty selling all of its by-product sodium sulfite and saltcake. As the
price of caustic soda has risen, demand for by-product sulfite has increased,
but substantial inventory remains to be sold. Approximately 2% of INDSPEC's net
sales for the twelve months ended March 31, 1995 were of by-product sulfite and
saltcake.
SYNTHETIC SODIUM SULFITE
Prior to September 30, 1991, INDSPEC produced synthetic sodium sulfite at
its Tuscaloosa Plant. Synthetic sodium sulfite is of higher quality than
by-product sodium sulfite and is used primarily in water treatment and as a
pulping agent in paper mills employing chemi-mechanical pulping methods. INDSPEC
transferred its customer list to Solvay Minerals Company in 1990 and after a
period of production exclusively for Solvay, INDSPEC closed its facility in
1992.
Because of market conditions existing in January 1994 for synthetic sodium
sulfite and bisulfite solutions and lower caustic soda prices, INDSPEC entered
into agreements with suppliers of caustic soda, a principal
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component of synthetic sodium sulfite, which provides INDSPEC with low cost
caustic soda through December 1995. As a result, in October 1993 INDSPEC began
the process of reopening the Tuscaloosa Plant and INDSPEC began marketing
synthetic sodium sulfite produced at the Tuscaloosa Plant in March 1994. Sales
from the Tuscaloosa Plant represented approximately 2% of INDSPEC's net revenue
in 1995. In April 1995, INDSPEC entered into an agreement to transfer operations
of the Tuscaloosa Plant to Southern Ionics, Inc.
SALES AND MARKETING
INDSPEC markets its products on a worldwide basis through its direct sales
force and through independent sales representatives. INDSPEC markets resorcinol
and resorcinol-based products to customers in approximately 50 countries
throughout the world. Resorcinol and resorcinol-based products and sodium
sulfite are marketed through INDSPEC's Pittsburgh, Pennsylvania office to
domestic customers and to customers in Asia and through INDSPEC's office in
Rotterdam, Holland to customers in Europe, Africa and the Near East. Saltcake is
marketed through a wholesaler and other distributors and through INDSPEC's
employees.
To reduce production and transportation costs of resorcinol products for
customers in the western United States and western Europe, INDSPEC has
selectively granted licenses to use its technology to produce resorcinol-based
resins and adhesives on INDSPEC's behalf. Pursuant to an exclusive license
ending in March 1997, subject to renewal, INDSPEC has provided such a license to
a producer in Oregon. Another license was provided to a producer in Norway,
which ends in July 1997. INDSPEC purchases all such production on a cost-plus
basis. Products manufactured by these contract producers accounted for 3% of
INDSPEC's net sales for the twelve months ended March 31, 1995.
For the year 1993, the period April 1, 1993 to December 2, 1993, the period
December 3, 1993 to March 31, 1994, and the year ended March 31, 1995,
approximately 47%, 44%, 47%, and 44%, respectively, of INDSPEC's net sales were
attributable to export sales. Export sales of resorcinol are generally
characterized by lower margins than domestic sales due to higher transportation
costs and import duties. The margins on export sales denominated in foreign
currencies generally improve during periods when the U.S. dollar is weak
relative to foreign currencies and may be adversely affected by a relative
increase in the value of the U.S. dollar. INDSPEC maintains a policy of entering
into foreign exchange contracts to hedge against currency fluctuations that
could affect the value of INDSPEC's non-U.S. dollar receivables.
COMPETITION
According to published industry data, prior to December 1991 there were
four major worldwide commercial producers of resorcinol -- INDSPEC in the United
States, Hoechst AG ("Hoechst") in Germany, and Sumitomo Chemical Company, Ltd.
("Sumitomo") and Mitsui Petrochemical Industries ("Mitsui") in Japan. INDSPEC's
capacity accounted for approximately 50% of the total estimated capacity of the
four major producers. In December 1991, Hoechst announced that it was closing
its 11,000 ton resorcinol plant in Frankfurt, Germany. The plant had been
restricted to producing 8,000 tons per year of resorcinol since 1987 by
regulatory authorities. In February 1992, Sumitomo announced plans to increase
its capacity for resorcinol production in Japan from 9,000 tons to 18,000 tons.
Sumitomo cited increasing demand for resorcinol in office automation products
and the Hoechst plant shutdown as the reasons for its expansion. The new
Sumitomo plant began production in January 1994.
Resorcinol can be produced using either a sulfonation fusion or
hydroperoxidation process. INDSPEC uses the sulfonation fusion process, while
Sumitomo and Mitsui use the hydroperoxidation process. INDSPEC believes that the
cost to produce resorcinol is comparable under either process.
INDSPEC is the largest domestic producer of sodium sulfite. The total
domestic capacity for production of sodium sulfite is estimated to be 149,000
tons, with INDSPEC's by-product sulfite accounting for approximately 33% of this
capacity. The aggregate annual capacity of the two other major producers is
estimated to be 91,000 tons. The domestic capacity of saltcake is estimated to
be 160,000 tons per year, with
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INDSPEC's capacity of 32,000 tons accounting for approximately 20% of the total
domestic capacity in calendar 1994.
RAW MATERIALS AND SUPPLIES
INDSPEC's major raw materials are chemical feedstocks that have widespread
applications. The major raw materials in the production of resorcinol are
benzene, caustic soda and oleum. While there are alternative suppliers for these
raw materials, INDSPEC currently purchases each of these raw materials from a
single supplier. Management believes that benzene, caustic soda and oleum are,
and will remain for the foreseeable future, in adequate supply. INDSPEC produces
resorcinol-based resins and adhesives by combining phenol, formaldehyde and
other chemicals with resorcinol. Although phenol is available from many
suppliers, INDSPEC purchases phenol from a single supplier. Management believes
that phenol and formaldehyde are, and will remain for the foreseeable future, in
adequate supply. Historically, INDSPEC has increased the prices of its products
to compensate for increases in raw material and other direct costs.
DISTRIBUTION
Resorcinol is typically supplied in flake or powder form and generally
packaged in bags or drums, although an increasing amount of resorcinol is
delivered in liquid form. Resorcinol products are warehoused at the Petrolia
Plant and at a nearby leased warehouse. INDSPEC's resorcinol and
resorcinol-based products are shipped to domestic customers primarily by truck
from its Petrolia Plant, while most export shipments are sent by ship to and
distributed from leased warehouses in Rotterdam, Holland. Resorcinol products
are also shipped to customers in the western United States from INDSPEC's
licensee in Oregon and to customers in western Europe from INDSPEC's licensee in
Norway. Most sodium sulfite and saltcake is shipped directly to consumers by
bulk rail, barge and truck from the Petrolia Plant. INDSPEC utilizes railcars,
silos and an independent warehouse to store and ship some sodium sulfite and
saltcake.
CUSTOMERS
In 1995, INDSPEC's products were sold to customers in over 50 countries.
Only one customer accounted for 10% or more of INDSPEC's net sales during fiscal
1995. The Goodyear Tire & Rubber Company has acquired resorcinol and
resorcinol-based resins from INDSPEC for over forty years, the most recent ten
years of which have been pursuant to a series of contracts whereby, pursuant to
a pricing formula, INDSPEC converts benzene supplied by or acquired for the
account of Goodyear. All other raw materials and labor are supplied by INDSPEC.
The current toll conversion agreements are renewable automatically for
successive one-year periods and are in effect until at least December 31, 1996.
Net sales of resorcinol and resorcinol-based resins to Goodyear represented
approximately 22%, 20%, 19%, and 19% of total net sales of INDSPEC for the year
ended March 31, 1993, the period April 1, 1993 to December 2, 1993, the period
December 3, 1993 to March 31, 1994, and the year ended March 31, 1995,
respectively.
RESEARCH AND DEVELOPMENT
INDSPEC's management believes that an active research and development
effort is important to the expansion of commercial applications of resorcinol.
INDSPEC works actively with its customers to develop applications to solve
customers' problems. INDSPEC continues to develop enhanced techniques for
bonding new materials to tire bodies and linings to be incorporated into
longer-wearing tires. In addition, INDSPEC is involved in a long-term effort to
work with steel-belted tire manufacturers that use cobalt-based adhesive systems
to encourage them to integrate resorcinol and cobalt to create an adhesive
system that INDSPEC believes is superior to that afforded by cobalt alone. After
undertaking extensive tire tests, some major international tire manufacturers
have begun using the INDSPEC resin in combination with the cobalt-based system
in the manufacture of truck tires.
INDSPEC's research also focuses on the uses of resorcinol and its
derivatives in the herbicide, color reprographics and fiber industries and on
developing flame-retardant, resorcinol-based resins with reduced
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smoke emission characteristics as a substitute for some polyester products.
Further, INDSPEC is continuing to develop wood adhesives for application in
composite lumber products.
INDSPEC leases laboratory space in a facility in Harmarville, Pennsylvania
for research and development. INDSPEC has 20 research and development personnel,
substantially all of whom have been with INDSPEC and its predecessors for an
average of 15 years. Research and development expenses, including depreciation
and allocated corporate charges, incurred by INDSPEC for the year ended March
31, 1993, the period April 1, 1993 to December 2, 1993, the period December 3,
1993 to March 31, 1994, and the year ended March 31, 1995 were $2.2 million,
$1.5 million, $.7 million and $3.2 million, respectively. The increase in 1995
is due to INDSPEC's expenditures related to a pilot process that is part of
INDSPEC's continuing efforts to develop its hydroperoxidation process for the
production of resorcinol. See "Technology and Licensing."
TECHNOLOGY AND LICENSING
INDSPEC acquired from Koppers the material patents, patent applications,
trademarks, copyrights, transferable licenses, inventions, trade secrets,
proprietary processes and formulae previously used in the business by Koppers.
Among the trademarks acquired by INDSPEC was the Penacolite trademark which has
been used to market resorcinol-based resins and adhesives since 1941. INDSPEC
recently patented a new process for the manufacture of resorcinol, and holds
approximately 65 patents covering resorcinol resins, adhesives and other
resorcinol derivatives. INDSPEC believes that its patents concerning tire resins
will help INDSPEC to maintain its leading market position in the tire industry.
INDSPEC believes that these resins should have commercial appeal as tire
manufacturers place greater emphasis on the low-fuming characteristics possessed
by these resins.
INDSPEC has developed and patented a modified hydroperoxidation process
which INDSPEC would utilize if it decided to increase its capacity and build a
new plant, since the construction cost of a hydroperoxidation plant is
significantly less than that of a new plant using sulfonation fusion, the
process currently used by INDSPEC to manufacture resorcinol. Since management
expects long-term demand for resorcinol to continue to grow as new applications
are developed, INDSPEC is continuing work on construction and operation of a
pilot plant to commercialize INDSPEC's hydroperoxidation technology. As part of
the 1993 Transactions, the Business Trust retained the patents for the
hydroperoxidation process, but granted Chemical a non-exclusive license to use
such process. The license provides that Chemical must expend not less than $1.0
million during the first five years of the term of the license to develop the
process to produce resorcinol using the hydroperoxidation technology. In 1995,
Chemical expended $1.4 million on the hydroperoxidation pilot plant project. In
addition, Chemical must pay royalties to the Business Trust based on the lesser
of certain percentages of gross revenues or net profits attributable to sales of
resorcinol made by Chemical using the hydroperoxidation technology. Payment of
the royalties is subject to certain limitations under INDSPEC's Senior Credit
Facility and the Indenture. Additionally, the Senior Credit Facility and the
Indenture contain restrictions on INDSPEC's ability to incur additional
indebtedness which could limit INDSPEC's ability to construct a full-scale
production facility to utilize the hydroperoxidation technology. The license
agreement also grants Chemical a right of first refusal to purchase the patents
if the Business Trust should ever desire to sell them.
INDSPEC has granted to licensees in Oregon and Norway the right to use its
technology to produce resorcinol-based resins and adhesives on INDSPEC's behalf.
See "Sales and Marketing."
ENVIRONMENTAL REGULATION
INDSPEC believes that its operations are in compliance in all material
respects with applicable environmental laws and regulations. However, chemical
manufacturing companies are subject to extensive environmental, health and
safety laws and regulations, many of which provide for potential fines and
criminal penalties of a significant nature. Accordingly, the normal operations
of a chemical manufacturing plant and the transportation, storage and disposal
of products and wastes necessarily involve a risk that a violation of
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these laws and regulations could result in a material penalty or other
sanctions. INDSPEC is not aware of any adverse environmental occurrences of a
material nature in 1995.
No claims have been made against INDSPEC relating to Koppers operations
prior to the Original Acquisition. As described below, the Asset Purchase
Agreement relating to the Original Acquisition (the "Asset Purchase Agreement")
provides an indemnity from Koppers with regard to such claims, in the event any
may occur in the future.
According to the Asset Purchase Agreement, Koppers (now BEI) is obligated
to indemnify INDSPEC against any environmental liability or obligation arising
from the failure to comply with environmental laws prior to the closing of the
Original Acquisition in 1988; agreements, orders and decrees in effect at such
time; claims for environmental liability for acts or omissions relating to the
Petrolia Plant or the Tuscaloosa Plant (collectively, the "Plants") occurring
prior to closing of the Original Acquisition; and activities of Koppers and its
predecessors occurring at any time at properties not acquired by INDSPEC. The
environmental indemnification obligation survives until December 2000, except
for claims arising from off-site activities prior to December 1988, for which
the indemnification obligation survives indefinitely. Beazer PLC of Great
Britain, the parent of BEI, has guaranteed performance of the environmental
indemnification obligation. Beazer PLC is currently a subsidiary of Hanson
Industries, Ltd. Subject to certain limitations, INDSPEC is obligated to
indemnify Koppers against any environmental liability or obligation arising from
acts or omissions relating to the Plants occurring after the Original
Acquisition and any expense necessary to comply with any law relating to the
physical structure of the facilities acquired from Koppers, including the
removal of asbestos or polychlorinated biphenyls. INDSPEC also is obligated to
indemnify Koppers against any on-site environmental liability or obligation for
any matter for which a claim has not been made before December 2000.
Prior to the Original Acquisition, Koppers encountered environmental
compliance problems and potential liabilities arising from wastewater
discharges, the contamination of soils and groundwater, excessive emissions of
particulates and other air pollutants, and the disposal of potentially hazardous
waste materials in connection with the operation of the Plants. INDSPEC
understands that BEI is responding to claims regarding disposal of material
which could relate to the Petrolia Plant. INDSPEC has not been named in any such
claims. On November 13, 1995, INDSPEC filed a notice of claim with Beazer
seeking indemnification for the cost of remediation of the release of pollutants
at the Petrolia Plant, which INDSPEC preliminarily estimated would cost up to
$2.1 million. As part of its on-going clean-up at the site, BEI has constructed
and operates a groundwater collection system and treatment facility on the
Petrolia Plant site to clean up groundwater contamination relating to the period
prior to the Original Acquisition. In addition, Koppers implemented, and INDSPEC
has continued, a program designed to ensure that its operations comply with
applicable environmental regulations and permits.
INDSPEC monitors federal, state and local regulations governing air
emissions, wastewater discharges, waste management and disposal and land use;
the manufacturing, use and distribution of chemical products; employee health
and safety; and other activities that may affect the environment, all of which
may affect INDSPEC's operations. In particular, additional capital expenditures
may be required as a result of (i) regulations to be issued pursuant to the
Clean Air Act Amendments of 1990, (ii) regulations recently issued concerning
Process Safety Management, (iii) proposed regulations concerning exposure limits
for benzene and formaldehyde and (iv) regulations to be issued pursuant to the
Pennsylvania Residual Waste Regulations. These regulations will also likely
require some additional ongoing compliance costs, although the extent of the
impact on INDSPEC cannot be estimated yet. INDSPEC has identified anticipated
capital expenditures relating to these and other environmental requirements of
up to $1.2 million to be spent over the next two fiscal years, although it is
not certain how much of this amount will actually be required.
EMPLOYEES
As of December 1, 1995, INDSPEC employed 372 persons. The employees fall
into four general categories based on the nature of their employment: research
and product development; operations; marketing; and administration and support.
Currently, 20 employees are involved in research and product development, 323
employees (5 of whom are based in Pittsburgh) are involved in the operations of
the Petrolia Plant,
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19 employees are assigned to marketing functions, and 10 employees perform
administrative and support services. Management considers relations with its
employees to be satisfactory.
Of INDSPEC's 318 employees located at the Petrolia Plant, 227 are
represented by Local 13300 of the United Steelworkers of America (the "USWA").
In April 1995, INDSPEC and the USWA reached agreement on a revision and renewal
of their collective bargaining agreement extending to April 1999 with increases
of approximately 4-5% for each year of the agreement. This agreement
automatically renews annually, subject to termination or modification by either
party upon 60 days notice given prior to April 1999 or any anniversary thereof.
PROPERTIES
INDSPEC's principal facilities consist of the Petrolia Plant and the
Harmarville research facility. The Petrolia Plant is situated on a 262-acre
tract owned by INDSPEC. The Harmarville research and development facility
contains 16,500 square feet and is currently leased on a month-to-month basis,
although INDSPEC is continuing negotiations for a long-term lease renewal. As of
December 1, 1995, INDSPEC also owns or leases storage facilities and leases
approximately 452 railcars. In addition, INDSPEC has entered into a lease of
approximately 12,000 square feet of office space in Pittsburgh, Pennsylvania for
its principal executive offices which expires in March 1999. INDSPEC also has a
sales office in Rotterdam, Holland which it rents pursuant to a lease expiring
in May 1999. Previously, INDSPEC operated the Tuscaloosa Plant which was located
on a 7.5-acre site held pursuant to a prepaid lease that expires in 1999. This
lease was assigned to Southern Ionics, Inc. in January 1996.
LEGAL PROCEEDINGS
INDSPEC is a party to certain claims and legal proceedings, none of which
INDSPEC believes will have a material adverse effect on its financial condition
or its results of operations.
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SELECTED HISTORICAL FINANCIAL INFORMATION OF INDSPEC
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PREDECESSOR INDSPEC
------------------------------------------------ -----------------------------------------------------------
YEAR YEAR YEAR PERIOD PERIOD YEAR NINE MONTHS NINE MONTHS
ENDED ENDED ENDED APRIL 1, 1993- DECEMBER 3, 1993- ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, DECEMBER 2, MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31,
1991 1992 1993 1993 1994 1995 1994 1995
--------- --------- --------- -------------- ----------------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net
Sales(1)..... $ 98,719 $ 93,267 $ 99,829 $ 70,778 $ 33,094 $117,352 $ 82,907 $ 95,012
Operating
Expenses(1)... 66,679 63,532 64,641 45,635 22,648 78,584 56,123 62,046
Provision for
loss (reco-
very) on rec-
eivable(2)... -- -- 1,300 (737) -- -- -- --
Provision for
loss (reco-
very) on
Tuscaloosa
facility(1).. -- -- 2,270 (1,000) -- -- -- --
Depreciation
and amorti-
zation(3).... 17,115 12,349 14,064 8,291 4,423 15,484 10,901 11,445
-------- -------- -------- -------- -------- -------- -------- --------
Income before
interest,
taxes,
extraordi-
nary items,
and account-
ing method
changes...... 14,925 17,386 17,554 18,589 6,023 23,284 15,883 21,521
Interest
expense...... 21,880 19,040 16,895 10,822 6,029 18,407 13,615 13,603
Income
taxes........ -- -- 378 2,621 -- 450 (217) 3,135
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss)
before ex-
traordinary
items and
accounting
method
changes...... (6,955) (1,654) 281 5,146 (6) 4,427 2,485 4,783
Extraordinary
gain on note
redemption... -- -- -- -- -- -- -- 342
Extraordinary
credit --
utilization
of tax loss
carry-
forward...... -- -- 302 -- -- -- -- --
Extraordinary
loss on
reorganiza-
tion......... -- -- -- (8,470) -- -- -- --
Cumulative
effect of
changes in
accounting
methods...... -- -- -- 2,232 -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Net income
(loss)....... $ (6,955) $ (1,654) $ 583 $ (1,092) $ (6) $ 4,427 $ 2,485 $ 5,125
======== ======== ======== ======== ======== ======== ======== ========
(Loss) income
per share of
common stock
before
extra-
ordinary
items and
changes in
accounting
methods...... $(106.40) $ (39.80) $ (36.52) $ 24.52 $ (0.13) $ 79.61 $ 47.86 $ 86.02
Earnings per
share effect
of gain on
redemption
of notes..... -- -- -- -- -- -- -- 6.15
Earnings per
share effect
of extra-
ordinary
items........ -- -- 3.46 (97.25) -- -- -- --
Earnings per
share effect
of account-
ing method
changes...... -- -- -- 25.63 -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Net income
(loss) per
common
share........ $(106.40) $ (39.80) $ (33.06) $ (47.10) $ (0.13) $ 79.61 $ 47.86 $ 92.17
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, MARCH 31, DECEMBER 2, MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31,
1991 1992 1993 1993 1994 1995 1994 1995
--------- --------- --------- -------------- ----------------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Accounts
receivable... $ 11,792 $ 12,709 $ 14,014 $ 14,483 $ 15,621 $ 16,317 $ 16,338 $ 15,814
Inventory..... 16,176 15,266 15,505 14,879 14,369 14,863 13,963 20,028
Net fixed
assets(4).... 80,845 76,308 69,885 68,784 104,178 100,202 102,124 97,704
Total
assets(4).... 183,172 172,372 161,895 171,267 238,288 228,358 230,822 224,901
Long term
debt
(including
current
portion)(4)... 160,355 152,052 143,067 134,866 189,738 174,808 181,246 162,582
Redeemable
preferred
stock........ 14,699 16,417 16,505 17,750 -- -- -- --
- ---------------
(1) In 1993, Predecessor closed the synthetic sulfite production facility in
Tuscaloosa, Alabama, established a reserve for loss on disposal of $2.3
million and accounted for the transaction as a discontinuance of a portion
of a business segment. In October 1993, Predecessor restarted the facility,
reversed $1.0 million of the aforementioned reserve, and restated the
financials to include all historical results of the Tuscaloosa operation in
sales and revenue.
(2) In 1993, Predecessor established a reserve of $1.3 million for the possible
uncollectibility of a receivable from the Soviet Union. In September 1993,
Predecessor accepted a reduced payment amount that netted the Predecessor
$.7 million in income.
(3) The decrease in depreciation and amortization in the year ended March 31,
1992 is due to the extension of useful lives on various assets.
(4) The increase in assets as of March 31, 1994 relates to the step-up in basis
of assets for the purchase accounting of INDSPEC and the increase in
liabilities reflects the new debt structure of INDSPEC as a result of the
financing of the acquisition.
</TABLE>
60
<PAGE> 70
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For purposes of this discussion, no distinction is made between the
operations of Predecessor and INDSPEC, except where the distinction is required
so as not to be confusing.
RESULTS OF OPERATIONS
Set forth below is a discussion of the results of operations of INDSPEC for
the three- and nine-month periods ended December 31, 1995 compared to the
corresponding periods of the previous year, and for the twelve-month periods
ended March 31, 1995, 1994 and 1993, each compared to the respective preceding
twelve-month period.
THREE- AND NINE-MONTH PERIODS ENDED DECEMBER 31, 1995
Total revenue increased 4% and 15% for the quarter and nine-month periods
ended December 31, 1995, respectively. Compared to the prior year period,
revenue from the sale of resorcinol declined 1% for the quarter as a 21%
increase in unit pricing offset a 19% decline in unit volume. Year-to-date
revenue from the sale of resorcinol increased 15% due to an 18% increase in unit
pricing and a 3% decline in unit volume. Revenue from resorcinol-based tire
resins had increased 17% for the year and 14% for the quarter due principally to
increased unit pricing. Revenue from resorcinol-based wood adhesives also
increased 14% compared to the prior year period due to increased unit pricing.
Revenue from the sale of by-product sodium sulfite increased 14% for the
nine-month period due to a large export shipment while unit pricing has declined
6%.
Cost of goods sold (excluding depreciation and amortization) as a percent
of sales declined from 57% to 50% compared to the same quarter of the prior year
due to higher unit prices for resorcinol and the profitable liquidation of the
Company's inventory of raw materials at its synthetic sulfite plant in
Tuscaloosa, Alabama. For the nine months ended December 31, 1995, the average
production cost of a pound of resorcinol increased 10% compared to the prior
year as the Company encountered production problems due to supply interruptions
of oleum, a key raw material and the continued effect of higher caustic soda
prices. Benzene prices were lower in the quarter and helped offset the increase
in caustic prices. The Company completed its scheduled maintenance turnaround in
October in the normal time and cost required for the Petrolia Plant to complete
a turnaround.
Selling, research, general, and administrative expenses increased 15% in
the quarter and 16% year-to-date due to higher profit sharing paid to all
employees and research and development costs related to the Company's on-going
research in the area of hydroperoxidation technology for the production of
resorcinol. The Company expects that selling, research, general and
administrative expenses will continue to be higher than the prior year as the
Company continues to reward its employees for increased performance via
quarterly profit sharing payments.
TWELVE-MONTH PERIOD ENDED MARCH 31, 1995
Revenue from the sale of resorcinol and resorcinol-based products increased
12% for the twelve-month period ended March 31, 1995 compared to the prior year.
For the twelve-month period ended March 31, 1995, revenue from domestic sales of
resorcinol increased 22% compared to the prior year and unit pricing declined
2%. Average pricing for the quarter ended March 31, 1995 increased 14% and 10%
over the average pricing for domestic resorcinol achieved in the quarters ended
December 31, 1994 and March 31, 1994, respectively. The large volume increase is
principally due to increasing use of resorcinol as a fire retardant additive to
plastics. Revenue from export sales of resorcinol increased 6% due to a 3%
increase in unit pricing and a 3% increase in unit volume. Unit pricing on
export sales for the quarter ended March 31, 1995 increased 13% and 20% compared
to the quarters ended December 31, 1994 and March 31, 1994, respectively, due to
a combination of the weaker U.S. dollar and increased pricing to the end user.
Revenue from toll production increased 8% over the prior year due to higher
volume. For fiscal 1995, revenue from the sale of tire resins increased 20% due
to increases in unit volume. Revenue from the sale of adhesives to the
specialized wood products industry increased 11% for the twelve-month period
ended March 31, 1995 due to higher unit prices.
61
<PAGE> 71
Cost of sales (before depreciation and amortization) as a percent of sales
declined from 57% in 1994 to 55% in 1995. For fiscal 1995, cost of sales was
favorably affected by lower average caustic soda prices and, to a lesser degree,
lower benzene prices. However, caustic soda prices increased dramatically in the
last two quarters of fiscal 1995, and INDSPEC expects its average cost of
caustic soda to be higher in fiscal 1996. This has been offset by higher
manufacturing costs and lower by-product credits due to the decreased value of
by-product sulfite and saltcake. During the year ended March 31, 1995,
modifications were made to the Petrolia Plant that increased its capacity by 8%.
For fiscal 1995, the Tuscaloosa Plant operated at a net loss of $1.4 million due
principally to depreciation and amortization expense of $1.1 million. Effective
April 1, 1995, INDSPEC entered into an agreement with Southern Ionics, Inc.
pursuant to which Southern Ionics has hired substantially all INDSPEC's
Tuscaloosa employees and will assume responsibility for substantially all the
operations of the Tuscaloosa Plant.
Revenue from the sale of by-product sodium sulfite declined 9% from the
prior year. The volume of sulfite sales declined 4% in the period, and there was
a 5% decline in unit prices due to higher freight costs. In March 1994, INDSPEC
entered into a long-term agreement with a pulp and paper manufacturer for the
sale of saltcake. As a result of this contract, INDSPEC sold all its excess
saltcake inventory, although at lower unit pricing than in prior years. INDSPEC
continues to experience difficulty selling all of its by-product sulfite due to
the switch by several of its paper customers to processing recycled paper and
competition from other producers of by-product sulfite. This has negatively
affected earnings due to the higher storage and handling costs for the excess
inventory.
Selling, research, general and administrative expenses increased 60% from
the prior year due to higher fees paid to Castle Harlan for management services;
higher employee compensation costs, principally compensation for officers;
expenses related to the pilot work to develop INDSPEC's patented
hydroperoxidation technology; and increased profit sharing to all employees.
During the year, INDSPEC changed the discount rate assumed in calculating
its pension and postretirement costs from 7% to 8.25%. This change in assumption
decreased INDSPEC's accumulated benefit obligation on its retirement plans by
$2.1 million as of March 31, 1995 and decreased its accumulated postretirement
benefit obligation by $1.4 million as of March 31, 1995.
TWELVE-MONTH PERIOD ENDED MARCH 31, 1994
Revenue from the sale of resorcinol and resorcinol-based products increased
7% for the twelve-month period ended March 31, 1994 compared to the prior year.
For the twelve-month period ended March 31, 1994, revenue from domestic sales of
resorcinol increased 35% compared to the prior year and unit pricing increased
2%. The large volume increase is principally due to increasing use of resorcinol
as a fire retardant additive to plastics. Revenue from export sales of
resorcinol declined 1% due to a 4% decline in unit pricing. The decline in unit
pricing is attributable to the stronger U.S. dollar in the second half of
calendar 1993. Revenue from toll production declined 2% over the prior year due
to lower unit pricing. For the year, revenue from the sale of tire resins
increased 7% due to a 4% increase in unit volume and a 3% increase in unit
prices. Revenue from the sale of adhesives to the specialized wood products
industry (including INDSPEC's new adhesive system that utilizes a liquid
hardener) increased by 20% for the twelve-month period ended March 31, 1994 due
to higher volume. The increase in volume is due to increased acceptance of
INDSPEC's new line of wood adhesives.
Cost of sales (before depreciation and amortization) as a percent of sales
was unchanged from the prior year. For the year, cost of sales has been
favorably affected by lower caustic soda prices and, to a lesser degree, lower
benzene prices. This has been offset by higher manufacturing costs as the plant
ran close to capacity, increased costs due to the accrual for retiree medical
costs, and lower by-product credits due to the decreased value of by-product
sulfite and saltcake.
Revenue from the sale of by-product sodium sulfite was 17% lower than the
prior year. The volume of sulfite sales increased 15% in the period, but this
was offset by a 27% decline in unit prices due to higher freight costs. INDSPEC
continues to experience difficulty selling all of its by-product sulfite and
saltcake due to the switch by several of its paper customers to processing
recycled paper and to low caustic soda prices, a component of many competing
products. This has negatively affected earnings due to the higher storage and
62
<PAGE> 72
handling costs for the excess inventory. In March 1994, INDSPEC entered into a
long-term agreement with a pulp and paper manufacturer for the sale of saltcake
(see "Results of Operations -- Twelve-Month Period Ended March 31, 1995").
After the close of the quarter ended September 30, 1993, Predecessor made
the decision to restart its idled synthetic sulfite operation at the Tuscaloosa
Plant. Predecessor closed this facility in 1991 due to the start-up of a
competing plant by Solvay Minerals Company (formerly Tenneco Soda Ash Company)
("Solvay") in Green River, Wyoming. The principal raw materials for the
Tuscaloosa Plant to produce synthetic sodium sulfite are caustic soda and
sulfur. In 1991, due to Solvay's raw material position, Predecessor concluded
that Solvay had a significant cost advantage over Predecessor more than
offsetting the additional freight Solvay would incur to service Predecessor's
market in the southeastern United States. At that time, Predecessor entered into
an arrangement with Solvay to sell Solvay a copy of Predecessor's customer list
in return for a royalty and to produce synthetic sodium sulfite on Solvay's
behalf until Solvay's plant became operational. In January 1993, Predecessor
made a final determination to terminate its efforts to find alternative uses for
the facility. Consequently, Predecessor recognized a provision for loss on
disposal of $2.3 million in order to reduce Predecessor's carrying value to $.5
million as of March 31, 1993. Subsequently, Predecessor was approached by a
number of caustic soda producers with very low, multi-year pricing on caustic
soda. Based on these proposals, Predecessor's management concluded that
Predecessor could again profitably produce and deliver synthetic sodium sulfite
to customers in the Southeast. Predecessor has negotiated agreements with
suppliers that will keep this cost advantage for a minimum of two years.
Predecessor commenced efforts to reopen the Tuscaloosa Plant in October 1993 and
began producing and marketing synthetic sodium sulfite in March 1994. The cost
to reopen the Tuscaloosa Plant was approximately $400,000. Due to the decision
to restart the Tuscaloosa Plant, in October 1993, Predecessor reversed $1.0
million of the aforementioned $2.3 million provision in October 1993.
In the twelve-month period ended March 31, 1994, INDSPEC booked income from
royalty payments from Solvay of $150,000 compared to $1.3 million in the prior
year.
Selling, research, general and administrative expenses increased 13% due to
higher fees paid to Castle Harlan for management services and to higher employee
compensation costs, principally compensation for officers.
In September 1993, Predecessor accepted from the Russian government an
amount that netted Predecessor approximately $700,000 after all expenses as
final payment for an outstanding receivable in the amount of $1.3 million. This
receivable related to sales of resorcinol to the former Soviet Union in February
and March of 1990. After attempting to collect the receivable for three years,
Predecessor elected to reflect an expense of $1.3 million to fully reserve
against the probable loss on this receivable. Due to the collection of a portion
of this receivable, Predecessor reflected an increase in other income of
$737,000.
As part of the 1993 Transactions and early retirement of debt, Predecessor
incurred transaction expenses during the period April 1, 1993 to December 2,
1993. These transaction expenses totaled $14.0 million (before tax benefit of
$5.5 million) and consisted of $8.1 million in premiums for the early retirement
of debt and preferred stock, $3.6 million to write off unamortized financing
costs and to properly reflect the face amount of junior subordinated debentures
that were originally issued at a discount, $.6 million to unwind interest rate
swap agreements, and $1.7 million of net interest cost for the defeasance of the
debt and junior subordinated debentures of Predecessor. These costs are
reflected as an extraordinary expense of Predecessor. Additionally, INDSPEC
incurred $11.2 million of transaction costs as follows: fees associated with the
subordinated debentures of $4.2 million, fees associated with the term debt of
$4.2 million, and other fees of $2.8 million. These fees have been capitalized
and are being amortized over the life of the related debt or goodwill.
TWELVE-MONTH PERIOD ENDED MARCH 31, 1993
Revenue from products produced at the Petrolia Plant for 1993 increased 12%
due principally to a 10% increase in the volume of resorcinol sold. Domestic
volume for resorcinol increased 14% due to higher usage of resorcinol as a fire
retardant and generally improved conditions in the tire industry. Unit pricing
on resorcinol declined 4% compared to the average for 1992. Export volume
increased 6% due to increased volume in
63
<PAGE> 73
Europe. Unit pricing on export sales of resorcinol increased 12% over the prior
year levels. Revenue from toll production of resorcinol for Goodyear increased
9% due to a 12% volume increase. Revenue from the sale of resorcinol resins
increased 17% due to a 13% increase in volume and a 4% price increase. The
increase in volume was due to higher production levels at domestic tire plants.
Revenue from sales of resorcinol adhesives declined 2% with an 8% increase in
volume offsetting a 10% decline in unit pricing. In 1993, INDSPEC developed a
new resorcinol adhesive system that utilizes a liquid hardener and has gained
excellent acceptance in the adhesive industry. Net revenue from the sale of
by-product sulfite declined 17% due entirely to lower average net selling
prices. INDSPEC continued to sell more of its sulfite in export markets which
require higher freight costs. Revenue from the sale of saltcake increased 7% due
to higher volume; however, in the fourth quarter of 1993 INDSPEC began
experiencing difficulty selling all its saltcake. The principal reasons for the
lower demand were the low cost of alternate materials and lower demand for
saltcake as more paper companies switched to recycled materials as their
principal feedstock. Revenue from the sale of other resorcinol derivatives
increased 15%. These products comprised approximately 2% of sales.
Revenue from synthetic sodium sulfite declined from $5.2 million to $1.3
million due to the termination of production for Solvay from the Tuscaloosa
Plant.
Overall cost of sales as a percent of revenue before depreciation and
amortization on products produced at the Petrolia Plant declined from 60% to 57%
due to generally high operating rates at the Petrolia Plant. Net raw material
costs increased 5% due to lower by-product credits. During the fourth quarter
caustic soda prices began declining. Plant costs excluding depreciation and
amortization increased 5% over 1992; however, since the plant produced 7% more
resorcinol than in 1992, the per unit cost of producing resorcinol was
unchanged. The termination of production of synthetic sodium sulfite at the
Tuscaloosa Plant resulted in a $3.4 million reduction in cost of goods sold.
Selling, research, general and administrative expenses increased by $1.1
million during 1993 due to payment of profit sharing expenses in the quarters
ended June 30 and September 30, 1992 in the aggregate amount of $546,000.
LIQUIDITY AND CAPITAL RESOURCES
NINE-MONTH PERIOD ENDED DECEMBER 31, 1995
INDSPEC generated $33.0 million of earnings before depreciation, interest,
taxes and amortization for the nine months ended December 31, 1995 compared to
$26.8 million for the same period of the prior year, an increase of 23%. During
the nine months ended December 31, 1995, INDSPEC repaid $13.6 million of
borrowings from its term lenders. INDSPEC also recognized interest expense of
$7.3 million related to Chemical's subordinated discount notes, none of which
was payable in cash. In May 1995, INDSPEC utilized its credit facility to redeem
$8.3 million of Chemical's subordinated notes at a pre-tax gain of $589,000.
These notes were originally acquired by Lehman Brothers, Inc. as part of a swap
agreement discussed more fully below. Inventory increased from $14.9 million as
of March 1995 to $20.0 million as of December 31, 1995 as INDSPEC increased its
inventory of resorcinol through September in anticipation of a maintenance
turnaround in October and then experienced lower than expected demand following
the turnaround.
During the nine months ended December 31, 1995, INDSPEC expended a total of
$4.6 million on capital expenditures to maintain the plant and make necessary
environmental and production improvements. INDSPEC has established a budget of
approximately $7.0 million for capital expenditures for the fiscal year ended
March 1996. INDSPEC anticipates that internally generated funds, coupled with
short-term borrowings under its $20 million credit facility will continue to be
sufficient to fund domestic and international operations, capital investment,
and research and development.
TWELVE-MONTH PERIOD ENDED MARCH 31, 1995
INDSPEC generated $38.8 million of EBITDA in fiscal 1995 compared to $35.6
million in the prior twelve months, an increase of 9%. INDSPEC utilized these
earnings to fund $5.6 million of capital expenditures, to pay $8.4 million of
cash interest expense, to retire $14.3 million of term debt (including
revolver), to retire $10.2 million of Chemical's subordinated notes and the
balance to fund working capital
64
<PAGE> 74
requirements. After giving effect to accretion on the subordinated discount
notes, INDSPEC retired $14.9 million of debt in 1995. In December 1994, INDSPEC
entered into an interest rate swap agreement with Lehman Brothers, Inc. that
allowed INDSPEC to pay interest on a current basis on $12.9 million face amount
($8.3 million of accreted value) of subordinated notes at the floating rate of
LIBOR plus 2 1/4 points for a six-month period. As part of that transaction,
Lehman and INDSPEC agreed that INDSPEC would bear the economic risk of any gain
or loss during the six-month swap period and that INDSPEC would have the right,
but not the obligation, to repurchase the notes at Lehman's basis during the
swap period.
Sales denominated in foreign currencies and the related accounts receivable
are recognized in U.S. dollars using the exchange rates in effect at the date of
the sale (measurement dates). INDSPEC had $4,300,000 and $5,100,000 of trade
receivables denominated in foreign currencies at March 31, 1994 and March 31,
1995, respectively. In addition, at March 31, 1995, INDSPEC had forward exchange
contracts, which mature throughout 1995, to purchase $7,400,000 with Dutch
guilders. Unrealized gains and losses are recognized in income for the effect of
fluctuations in exchange rates from the measurement dates to the end of
INDSPEC's reporting period.
The income tax rate is less than the statutory rate in both the 1995 and
1994 periods principally as a result of changes in net deferred tax assets and
liabilities. The differences between pre-tax income and taxable income relate
primarily to depreciation and amortization. Deferred tax assets include all net
operating loss (NOL) carryforwards available to INDSPEC. Under SFAS No. 109,
which INDSPEC adopted as of April 1, 1993, INDSPEC was required to record the
net realizable value of these NOL carryforwards as an asset for book purposes.
The reserve remained unchanged for 1995. These NOL carryforwards expire in the
years 2004 through 2009.
INDSPEC anticipates that internally generated cash flow, together with the
revolving loan facility, will be sufficient to fund domestic and international
operations, research and development and its obligations to its creditors,
including any early retirement of debt.
INDSPEC expects to spend $7.0 million on capital expenditures in 1996
compared to expenditures of $5.1 million, $3.0 million, $1.5 million, and $5.6
million for 1993, for the period April 1, 1993 to December 2, 1993, for the
period December 3, 1993 to March 31, 1994, and 1995, respectively. The planned
expenditures relate principally to improvements at the Petrolia Plant and
include expenditures designed to increase its annual capacity by an additional
2-3 million pounds. The Senior Credit Facility contains a covenant that
restricts capital expenditures to $8.5 million per year plus up to $3.0 million
of unutilized allowance to be carried forward to the next year.
The Senior Credit Facility and the Indenture also contain limitations on
INDSPEC's ability to incur additional indebtedness, transfer assets, pay
dividends, and guarantee the indebtedness of others. In addition, the Senior
Credit Facility provides for mandatory prepayments of the term loans and,
following repayment of the term loans, reductions to the commitments under the
revolving loan facility, in amounts equal to 100% of the net proceeds from the
issuance of any additional debt and sales of stock of INDSPEC, 100% of the net
proceeds from any asset sales by INDSPEC, subject to certain exceptions, and 50%
of annual excess cash flow of INDSPEC. Each of these provisions could limit
INDSPEC's ability to expand its operations. The consent of the lenders under the
Senior Credit Facility is required to permit consummation of the Transactions
contemplated by the Exchange Agreement.
65
<PAGE> 75
MANAGEMENT OF INDSPEC
DIRECTORS AND EXECUTIVE OFFICERS OF INDSPEC
The directors and executive officers of INDSPEC, each of whom has served
INDSPEC in the capacities indicated since consummation of the 1993 Transactions
on December 2, 1993, are as follows:
<TABLE>
<CAPTION>
POSITION WITH INDSPEC POSITION WITH INDSPEC
NAME AGE CHEMICAL CORPORATION HOLDING CORPORATION
- ---------------------- ---- --------------------------------- ------------------------
<S> <C> <C> <C>
Frank M. Spinola 51 President, Chief Executive President and Director
Officer and Director
Ernie L. Danner 41 Executive Vice President, Chief Vice President,
Financial Officer and Director Treasurer and Director
Donald V. Todd 60 Vice President, Sales and
Marketing
Fred M. Covelli 53 Vice President, Research and
Development
William S. Lee 43 General Counsel, Vice President Secretary
and Secretary
Jerome W. Wagoner 53 Assistant Vice President,
Petrolia Plant Operations
Barbara B. Buchner 42 Assistant Vice President, Quality
Assurance
Jan Roozenbeek 62 Assistant Vice President-Europe
John K. Castle 55 Director Director
T. J. Dermot Dunphy 63 Director Director
Vincent R. Scorsone 60 Director Director
Jeffrey M. Siegal 36 Director Director
Richard Y. Smith 52 Director Director
</TABLE>
FRANK M. SPINOLA served as President, Chief Executive Officer and a
director of Predecessor from its formation in December 1988. Prior thereto, Mr.
Spinola was employed by Koppers for 22 years, most recently as a Vice President
and the General Manager of the Industrial Specialty Chemicals division ("ISC")
from January to December 1988 and as the Manager of the Industrial Products
division's plant in Cicero, Illinois from 1984 to 1988. From 1966 to 1984, he
served in various operational and managerial positions with Koppers. Mr. Spinola
also serves as a member of Chemical's executive committee, as President of the
Business Trust and as President and a director of INDSPEC Technologies
Corporation, the trustee of the Business Trust (the "Business Trustee").
ERNIE L. DANNER joined Predecessor upon its formation in December 1988 and
served as Vice President, Chief Financial Officer and Treasurer. Prior to that
time, he was the Vice President--Finance, Administration and Planning of Adams &
Porter, an international agency specializing in marine and energy insurance,
from 1984 to December 1988. Mr. Danner also serves as Vice President and
Treasurer of the Business Trust and as Vice President and Treasurer and a
director of the Business Trustee.
DONALD V. TODD was employed by Koppers for 30 years, most recently as the
Manager of Sales and Marketing of ISC from 1986 to 1988 and as the Regional
Sales Manager of ISC from 1983 to 1986, prior to joining Predecessor upon its
formation in December 1988. From 1958 to 1983, he served in various technical,
sales and marketing positions with Koppers.
FRED M. COVELLI was employed by Koppers for 23 years, most recently as the
Manager of Business Development -- Resorcinol Products of ISC from 1987 to 1988
and as the Manager of the Antioxidants and Specialty Chemicals Department of ISC
from 1982 to 1987, prior to joining Predecessor upon its formation in December
1988. From 1965 to 1982, he served in various research and engineering
capacities with Koppers.
WILLIAM S. LEE served as General Counsel and Secretary of Predecessor
beginning in June 1989. He is an attorney, licensed in Pennsylvania and Texas.
He is also a CPA, licensed in Texas. From 1981 until joining Predecessor, he was
in private practice with Golden, Potts, Boeckmen, and Wilson, a Dallas, Texas
law firm. Mr. Lee also serves as Secretary of the Business Trust and the
Business Trustee.
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<PAGE> 76
JEROME W. WAGONER was employed by Koppers for 28 years, most recently as
the Plant Manager of the Petrolia Plant from 1978 to 1988 when he joined
Predecessor. From 1960 to 1978, he served in various operational positions with
Koppers.
BARBARA B. BUCHNER was employed by Koppers for 12 years, most recently as
the Director of Quality Assurance of the Chemical Systems Sector from 1984 to
1988 and as the Manager of Product Quality for ISC from 1982 to 1984, prior to
joining Predecessor upon its formation in December 1988. From 1976 to 1982, she
worked in the Resorcinol Products Development Group of Koppers.
JAN ROOZENBEEK was elected as Assistant Vice President -- Europe of
Predecessor in January 1992. Prior to that time, he served as Predecessor's
Director of Sales--Europe. Prior to the Original Acquisition, Mr. Roozenbeek was
employed by Koppers for 23 years in various sales positions. Mr. Roozenbeek has
managed the Rotterdam office since 1987.
JOHN K. CASTLE is Chairman of Castle Harlan, President and Chief Executive
Officer of Branford Castle, Inc., an investment company, and a General Partner
of Legend Capital Group, L.P. He is also Chairman of Castle Harlan GP, Inc., the
general partner of the general partner of CHPII. Immediately prior to forming
Branford Castle, Inc. in 1986, Mr. Castle was President and Chief Executive
Officer and a director of Donaldson, Lufkin & Jenrette, which he joined in 1965.
Mr. Castle is a director of UNC, Inc., Sealed Air Corporation, and the Quantum
Restaurant Group, Inc. He is also a trustee of the New York Medical College (for
11 years he was Chairman of the Board), a member of the Corporation of the
Massachusetts Institute of Technology and has served as a director of Equitable
Life Assurance Society of the United States. Mr. Castle also serves as a member
of Chemical's executive and compensation committees, a member of INDSPEC's
compensation committee and as a director of the Business Trustee.
T. J. DERMOT DUNPHY has been the Chief Executive Officer, President and a
director of Sealed Air Corp. (a protective packaging products and systems
manufacturer) since 1971. Mr. Dunphy is also a director of Public Service
Enterprise Group, Inc., United Jersey Bank and UJB Financial Corp. Mr. Dunphy
serves as a member of the compensation committee of each of Chemical and
INDSPEC.
VINCENT R. SCORSONE served as a Director of Predecessor since January 1989.
Mr. Scorsone was employed by Aluminum Company of America, an aluminum
manufacturing company, from 1960 until his retirement in January 1994, most
recently serving as Executive Vice President -- Chairman's Counsel from 1991 to
1994, the Group Vice President -- Alcoa Aerospace & Industrial Products from
1986 to 1991, the Group Vice President -- Primary Products from 1985 to 1986,
the Group Vice President -- Primary Metals from 1984 to 1985, and the Vice
President -- Primary Metals from 1982 to 1984. Mr. Scorsone serves as a member
of INDSPEC's audit committee. Mr. Scorsone is also a director of Quanex Corp.
JEFFREY M. SIEGAL has been an executive with Castle Harlan from 1989 to the
present. He currently serves as Managing Director. From 1984 until 1987, he
served in the Air Force Systems Command of the United States Air Force,
ultimately as a Captain and Program Manager. Mr. Siegal also serves as a member
of Chemical's executive and audit committees and as a director of the Business
Trustee.
RICHARD Y. SMITH has been the sole proprietor of Evergreen Capital Partners
Inc., a merchant banking firm, since April 1993. Prior to founding Evergreen, he
was a Managing Director of Chemical Bank from 1987 to 1993 with responsibilities
in corporate finance and as head of Chemical's Principal Transactions Group.
Prior to joining Chemical Bank, Mr. Smith was a Senior Vice President and a
member of the corporate finance group of Rothschild Inc., an investment banking,
venture capital and investment management firm. Mr. Smith also serves as a
member of Chemical's compensation and audit committees, as a member of INDSPEC's
compensation committee and as a director of the Business Trustee.
Each director holds office until the next annual meeting of stockholders
and until a successor has been elected and has qualified. Officers are elected
by the Board of Directors and serve at its discretion.
Upon consummation of the Merger, INDSPEC's Class A Directors will be
Messrs. Spinola, Danner and Scorsone, and the Class B Directors will be Messrs.
Castle, Dunphy and Siegal. See "The Merger -- Management of INDSPEC After the
Merger" and "The Restated Certificate and Restated Bylaws -- Board of
Directors." Upon consummation of the Exchange Offers, Messrs. Castle, Dunphy and
Siegel will resign, and Occidental will be entitled to elect all of the Class B
Directors. See "The Exchange Offers -- Management of INDSPEC After the Exchange
Offers."
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<PAGE> 77
EXECUTIVE COMPENSATION
All compensation of INDSPEC employees is paid by Chemical. Additionally,
Chemical is the INDSPEC party to the employment agreements discussed below.
The following table sets forth the compensation received from INDSPEC by
Mr. Spinola and the four highest paid officers ("Named Executives") for the
fiscal year 1995, the fiscal period that began December 2, 1993 and ended March
31, 1994, and from Predecessor for fiscal year 1993 and for the fiscal period
that began April 1, 1993 and ended December 2, 1993.
SUMMARY COMPENSATION TABLE
INDSPEC
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION AWARDS
---------------------------------------- ------------
OTHER SECURITIES ALL
ANNUAL UNDERLYING OTHER
SALARY BONUS(2) COMPENSATION(3) OPTIONS/SARS COMPENSATION(4)
NAME AND POSITION YEAR(1) ($) ($) ($) (#) ($)
- ----------------------- -------- -------- -------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
F.M. Spinola 1995 $302,533 $250,000 -- -- $2,839
President and CEO of 12/2/93- 96,012 83,333 -- 1,773 4,255
Chemical, President of 3/31/94
INDSPEC
E.L. Danner 1995 $175,782 $175,000 -- -- $2,839
Executive V.P., CFO of 12/2/93- 58,829 50,000 -- 591 2,763
Chemical, 3/31/94
V.P. and Treasurer of
INDSPEC
D.V. Todd 1995 $156,108 $207,131 $2,811 -- $2,831
V.P., Sales and 12/2/93- 43,239 55,454 2,702 502 2,194
Marketing of 3/31/94
Chemical
F.M. Covelli 1995 $126,808 $112,800 $2,100 -- $2,316
V.P., Research and 12/2/93- 38,299 42,356 -- 502 2,073
Development 3/31/94
of Chemical
W.S. Lee 1995 $143,392 $100,000 -- -- $2,718
General Counsel, V.P. 12/2/93- 43,241 33,333 -- 502 2,097
and Secretary of 3/31/94
Chemical, Secretary of
INDSPEC
PREDECESSOR
F.M. Spinola 4/1/93-
President and 12/2/93 $133,711 $243,502 -- -- --
CEO 1993 190,008 14,723 -- -- $4,042
E.L. Danner 4/1/93-
Executive V.P., 12/2/93 $ 80,709 $145,100 -- -- --
CFO 1993 114,408 6,649 -- -- $2,410
D.V. Todd 4/1/93-
V.P., Sales 12/2/93 $ 69,199 -- $1,981 -- --
and Marketing 1993 98,808 $ 5,742 $3,696 -- $2,081
F.M. Covelli 4/1/93-
V.P., Research 12/2/93 $ 68,477 -- -- -- --
and Development 1993 98,808 $ 5,742 -- -- $2,081
W.S. Lee 4/1/93-
General Counsel 12/2/93 $ 68,477 $ 98,400 -- -- --
and Secretary 1993 98,808 5,742 -- -- $2,081
- ---------------
(1) Since INDSPEC began operations on December 2, 1993, the compensation from
INDSPEC for its initial fiscal period covers only the period from December
2, 1993 to March 31, 1994.
</TABLE>
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<PAGE> 78
(2) For the period ended March 31, 1994, bonus consists of the amounts earned in
the fiscal period pursuant to the employee's employment contract discussed
below. For the Predecessor fiscal period ended December 2, 1993, bonus
consists of amounts paid at the direction of the board of Predecessor for
efforts related to the 1993 Transactions. For Predecessor's fiscal year
1993, bonus consists of amounts earned in the fiscal period pursuant to the
profit-sharing plan of Predecessor.
(3) Other Annual Compensation consists of personal use of company cars ( 2/3 of
the amount shown) and gross-up payments for tax liabilities incurred in
connection with personal use of company cars ( 1/3 of the amount shown).
(4) All Other Compensation consists of the executive's share of employer ESOP
contributions for the ESOP Plan Year that ended during the fiscal year
shown. INDSPEC's contributions are allocated to each participant based on
his or her salary and wages relative to total salary and wages for all ESOP
participants.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
There were no options granted during the fiscal year ended March 31, 1995.
There is no program regarding stock appreciation rights (SAR).
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
During the fiscal period ended in 1994, the Named Executives were granted
options to purchase INDSPEC Common Stock at a price of $450 per share, the fair
market value at the date of grant. The options vest ratably over a three-year
period from the date of the grant, subject to an extended vesting schedule as
the result of a $100,000 per year limitation, which causes Mr. Spinola's options
to vest over an eight-year period.
The Named Executives also hold stock options which were granted in 1989
pursuant to the terms of the Incentive Stock Option Plan of Predecessor. Under
the terms of that plan, options were granted to certain key employees to acquire
Class A Voting Common Stock of Predecessor at a price of $100 per share, the
fair market value of the stock at the date of grant. The options vested ratably
over a three-year period from the date of the grant. In connection with the 1993
Transactions, the Incentive Stock Options of Predecessor which remained
outstanding were converted into options to purchase INDSPEC Common Stock.
The following table presents the value of unexercised options held by the
Named Executives at fiscal year-end. There is no program regarding stock
appreciation rights. No options were exercised by the Named Executives in the
last completed fiscal year.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS/SARS AT IN-THE-MONEY OPTIONS/SARS AT
FISCAL YEAR-END(#) FISCAL YEAR-END($)(1)
NAME EXERCISABLE(E)/UNEXERCISABLE(U) EXERCISABLE(E)/UNEXERCISABLE(U)
- ------------------------------------- -------------------------------- --------------------------------
<S> <C> <C>
F.M. Spinola......................... 1,722E $1,386,000E
1,551U $ 775,500U
E.L. Danner.......................... 1,197E $ 948,500E
394U $ 197,000U
D.V. Todd(2)......................... 167E $ 83,500E
335U $ 167,500U
W.S. Lee............................. 1,017E $ 806,000E
335U $ 167,500U
F.M. Covelli......................... 1,167E $ 933,500E
335U $ 167,500U
- ---------------
(1) Values are calculated by subtracting the exercise price from the fair market
value of the stock as of the fiscal year-end. In the absence of an
established market value for the stock, the value of the stock as reflected
in the appraisal of fair market value of shares held by the ESOP as of
December 31, 1994 is considered as the fair market value.
(2) Mr. Todd sold 1,000 Predecessor Incentive Stock Options pursuant to the 1993
Transactions in December, 1993.
</TABLE>
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<PAGE> 79
PENSION PLAN
Predecessor had a Retirement Plan for Salaried Employees (the "Retirement
Plan") covering substantially all salaried employees, including the executive
officers of Predecessor. The Retirement Plan was assumed by INDSPEC in
connection with the 1993 Transactions. In general, a participant's benefits
under the Retirement Plan will commence upon retirement following attainment of
age 65 and are based on a vesting percentage multiplied by the number of years
that the participant has been a salaried employee ("Credited Service") according
to a formula that computes the participant's benefit based on Credited Service,
Terminal Salary, and Covered Compensation at the time of retirement, as follows:
For the first 35 years of Credited Service, the annual normal retirement benefit
is computed by multiplying Credited Service (but not to exceed 35 years) by
1.35% of Terminal Salary not in excess of Covered Compensation, plus 1.75% of
Terminal Salary exceeding Covered Compensation. Each year of Credited Service in
excess of 35 years adds 1.75% of Terminal Salary to the benefit. The term
"Terminal Salary" excludes amounts received under the Profit Sharing Plan of
INDSPEC and one half of the bonuses and generally is defined as the average
annual salary of the participant for the five highest consecutive years of the
participant's last ten years of Credited Service preceding retirement or during
all years of Credited Service if fewer than five years. The plan contains
provisions which grant Credited Service for employment at Koppers, and offset
benefits payable under the Koppers pension plan from the benefits payable under
the Retirement Plan. The term "Covered Compensation" means, generally, the
average of the taxable wage bases in effect during the 35-year period ending
with the year in which the participant attains, or will attain, Social Security
normal retirement age. In the event that a participant's employment with INDSPEC
terminates prior to age 65, he or she may be entitled to have the payment of his
or her benefits commence early; however, a participant's benefits that are paid
prior to age 65 may be reduced to reflect such early payment. During the last
fiscal year, the Retirement Plan was amended to reflect the $150,000 limitation
on compensation imposed by recently effective amendments to the Code.
In addition to the Retirement Plan, the Company also maintains a
non-qualified, unfunded supplemental executive retirement plan (the
"Supplemental Plan") that provides highly paid employees with the portion of
their retirement benefits not permitted to be paid from the Retirement Plan due
to limitations imposed by the Code. The following table illustrates the
estimated annual benefits provided under the Retirement Plan and the
Supplemental Plan without reduction for any offset amounts. Such benefit levels
assume retirement at age 65, the years of Credited Service shown, the applicable
Covered Compensation for a participant retiring at age 65 in 1995, and the
continued existence of the Retirement Plan and the Supplemental Plan without
substantial change.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
AVERAGE -------------------------------------------------------------------------------------
EARNINGS 10 15 20 25 30 35 40
- -------- ------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 50,000 $ 7,713 $ 11,570 $ 15,426 $ 19,283 $ 23,140 $ 26,996 $ 31,371
100,000 16,463 24,695 32,926 41,158 49,390 57,621 66,371
150,000 25,213 37,820 50,426 63,033 75,640 88,246 101,371
200,000 33,963 50,945 67,926 84,908 101,890 118,871 136,371
250,000 42,713 64,070 85,426 106,783 128,141 149,496 171,371
300,000 51,463 77,195 102,926 128,658 154,390 180,121 206,371
350,000 60,213 90,320 120,426 150,533 180,640 210,746 241,371
400,000 68,963 103,445 137,926 172,408 206,890 241,371 276,371
450,000 77,713 116,570 155,426 194,283 233,140 271,996 311,371
500,000 86,463 129,695 172,926 216,158 259,390 302,621 346,371
</TABLE>
The number of years of Credited Service of each of the Named Executives is
as follows: Frank M. Spinola -- 28 years; Ernie L. Danner -- 6 years; Donald V.
Todd -- 36 years; Fred M. Covelli -- 29 years; and William S. Lee -- 6 years.
For each of these persons the current compensation credited by the Retirement
Plan and Supplemental Plan is equal to the amount shown in the "Salary" column
of the Summary
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<PAGE> 80
Compensation Table, plus one-half of the amount shown in the "Bonus" column for
the period ended March 31, 1995.
COMPENSATION OF DIRECTORS
Directors (other than Messrs. Castle, Danner, Siegal and Spinola) receive
an annual fee of $15,000 and a fee of $600 for each meeting of the Board of
Directors or any committee thereof attended. INDSPEC reimburses directors for
their travel expenses.
EMPLOYMENT AND OTHER AGREEMENTS
INDSPEC and Chemical are parties to employment agreements with Messrs.
Spinola, Danner, Lee, Covelli and Todd for initial terms of three years
beginning December 2, 1993. Prior to the Merger, INDSPEC will terminate the
Current Employment Agreements with Messrs. Spinola, Danner, Lee and Covelli and
will enter into Replacement Employment Agreements with such executive officers.
INDSPEC currently anticipates that the Replacement Employment Agreements will be
substantially similar to the Current Employment Agreements but will expire at
the earlier of December 31, 2000 or the Conversion Date (the "Agreement Term").
Thereafter INDSPEC will have the right to terminate such officer's employment,
with or without cause, as of the last day of any month, upon 60 days prior
written notice. INDSPEC currently anticipates that INDSPEC and Mr. Todd will
enter into an amendment or supplement to Mr. Todd's current employment
agreement.
Mr. Spinola's Current Employment Agreement provides for (i) an initial
annual base salary of $289,000 which is subject to required increases related to
increases in the base salary of the next highest paid employee; (ii) an annual
bonus of the greater of 50% of his salary at the time or $250,000 if certain
performance goals are met; (iii) options, which were granted in 1993, to
purchase 1,773 shares of INDSPEC Common Stock at an exercise price of $450 per
share, with such options vesting ratably over an eight-year period; (iv)
INDSPEC's obligation, upon Mr. Spinola's death, to repurchase INDSPEC shares
owned by Mr. Spinola at the higher of $450 per share or the current ESOP
valuation; (v) Mr. Spinola's title with Chemical to include president and chief
executive officer; (vi) severance payments following termination of Mr.
Spinola's employment under certain circumstances, including termination
following a change in control of INDSPEC; and (vii) certain enhanced retirement
benefits.
INDSPEC currently anticipates that Mr. Spinola's Replacement Employment
Agreement will reduce the number of INDSPEC shares owned by Mr. Spinola that
INDSPEC is obligated to repurchase upon his death so that such obligation will
apply, at the election of his estate or representative, only to certain shares
and stock options. The repurchase will be at a price equal to $450 per share of
Class A Common Stock or, if higher, the value of such Class A Common Stock as
determined for purposes of calculating the Put Offer Ratio as though the
exchange date for the Put Offer were the date of Mr. Spinola's death, less, in
the case of unexercised options, the amount of the aggregate exercise prices of
such options.
Mr. Danner's Current Employment Agreement provides for (i) an annual base
salary of $175,000; (ii) an annual bonus of the greater of 50% of his salary at
the time or $150,000 if certain performance goals are met; (iii) options, which
were granted in 1993, to purchase 591 shares of INDSPEC Common Stock at an
exercise price of $450 per share, with such options vesting ratably over a
three-year period; (iv) INDSPEC's obligation, upon Mr. Danner's death, to
repurchase INDSPEC shares owned by Mr. Danner at the higher of $450 per share or
the current ESOP valuation; (v) Mr. Danner's title with Chemical to include
executive vice president; (vi) severance payments following termination of Mr.
Danner's employment under certain circumstances, including termination following
a change in control of INDSPEC; and (vii) certain enhanced retirement benefits.
Mr. Lee's Current Employment Agreement provides for (i) an annual base
salary of $130,000; (ii) an annual bonus of the greater of 50% of his salary at
the time or $100,000 if certain performance goals are met; (iii) options, which
were granted in 1993, to purchase 502 shares of INDSPEC Common Stock at an
exercise price of $450 per share, with such options vesting ratably over a
three-year period; (iv) INDSPEC's obligation, upon Mr. Lee's death, to
repurchase INDSPEC shares owned by Mr. Lee at the higher of $450 per
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<PAGE> 81
share or the current ESOP valuation; (v) Mr. Lee's title with Chemical to
include vice president; (vi) severance payments following termination of Mr.
Lee's employment under certain circumstances, including termination following a
change in control of INDSPEC; and (vii) certain enhanced retirement benefits.
INDSPEC currently anticipates that the Replacement Employment Agreements of
Messrs. Danner and Lee will reduce the number of INDSPEC shares that INDSPEC is
obligated to repurchase on the death of Mr. Danner or Mr. Lee so that INDSPEC
will purchase, at the option of such officer's estate or representative, only
certain shares and each unexercised option that is exercisable for shares of
Class A Common Stock at a price equal to $450 per share of Class A Common Stock
into which such options are exercisable or, if higher, the value of such Class A
Common Stock as determined for purposes of calculating the Put Offer Ratio as
though the exchange date for the Put Offer were the date of such officer's
death, less the amount of the aggregate exercise price of such options.
Mr. Todd's employment agreement provides for (i) an annual base salary of
$155,000; (ii) an annual bonus based on a percentage of Mr. Todd's base salary
based on company-wide goals; (iii) options, which were granted in 1993, to
purchase 502 shares of INDSPEC Common Stock at an exercise price of $450 per
share, with such options vesting ratably over a three-year period; and (iv)
severance payments following termination of Mr. Todd's employment under certain
circumstances, including termination following a change in control of INDSPEC.
INDSPEC currently anticipates that Mr. Todd's employment agreement will be
supplemented or amended to include provisions relating to (i) Mr. Todd's
agreement to tender in the Exchange Offers all shares of Class A Common Stock
that he is entitled to receive upon exercise of vested Options, (ii) if Mr. Todd
so elects, payment to Mr. Todd in exchange for the cancellation of all related
Options exercisable for shares of Class A Common Stock of an amount equal to
$1,768.57 multiplied by the number of such shares not acquired by Occidental in
the Exchange Offers, (iii) in the event of Mr. Todd's retirement after December
31, 1996, if Mr. Todd so elects, the surrender by Mr. Todd before June 30, 1997,
under certain circumstances of any remaining vested Options in consideration for
the greater of $2,218.57 per share or the aggregate dollar value per share of
Occidental Common Stock that would be received in a Put Offer if the date of
surrender were the Put Offer exchange date, minus the aggregate exercise price,
and (iv) for the proportional payment of Mr. Todd's annual bonus if Mr. Todd
should retire on a day other than the last day of INDSPEC's fiscal year.
Mr. Covelli's Current Employment Agreement provides for (i) an annual base
salary of $130,000; (ii) an annual bonus based on a percentage of Mr. Covelli's
base salary with adjustments based on individual and company-wide goals; (iii)
options, which were granted in 1993, to purchase 502 shares of INDSPEC Common
Stock at an exercise price of $450 per share, with such options vesting ratably
over a three-year period; (iv) Mr. Covelli's title with Chemical to include vice
president; (v) severance payments following termination of Mr. Covelli's
employment under certain circumstances, including termination following a change
in control of INDSPEC; and (vi) certain enhanced retirement benefits.
INDSPEC currently anticipates that Mr. Covelli's Replacement Employment
Agreement will provide for (i) an initial base salary of $130,000; (ii) an
annual bonus based on a percentage of Mr. Covelli's base salary based on
company-wide goals; (iii) options, which were granted in 1993, to purchase 502
shares of INDSPEC Common Stock at an exercise price of $450 per share, with such
options vesting ratably over a three-year period; (iv) Mr. Covelli's title with
Chemical to include vice president; (v) severance payments following termination
of Mr. Covelli's employment under certain circumstances, including termination
following a change in control of INDSPEC; and (vi) certain enhanced retirement
benefits.
Each Current Employment Agreement provides, and each Replacement Employment
Agreement will provide, that the executive has the right to require INDSPEC,
subject to certain conditions, to include any INDSPEC shares owned by him in
registration statements filed under the Securities Act with respect to INDSPEC
shares.
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<PAGE> 82
INDSPEC also currently anticipates that each Replacement Employment
Agreement will provide for the maintenance of the Incentive Stock Option Plan
adopted December 2, 1993, including the acceleration, upon a change in control,
of the vesting of options granted pursuant thereto and that, if within two years
after a change of control of Chemical, such executive's employment is
discontinued for any reason other than death, disability or cause, INDSPEC will
be obligated to pay such executive severance equal to twice his annual salary
plus the average of the bonus amounts paid him under the agreement and to
provide certain enhanced retirement benefits, disability benefits and continuing
health care coverage. Such severance payment may be greater or lesser than that
provided for pursuant to the Current Employment Agreements depending upon the
date on which such executive's employment is terminated.
CERTAIN INDSPEC RELATIONSHIPS AND RELATED TRANSACTIONS
As part of the 1993 Transactions, on December 2, 1993 Chemical entered into
the Management Agreement with Castle Harlan pursuant to which Castle Harlan
agreed to provide Chemical with business and organizational strategy, financial
and investment management, and merchant and investment banking services in order
to assist Chemical's strategic planning process, facilitate relations with the
financial and investment banking community and maximize stockholder value. In
consideration for those services, Chemical agreed to pay to Castle Harlan on a
quarterly basis an annual management fee of $1 million; provided, that such
management fee is not payable in any fiscal year unless INDSPEC's Consolidated
EBITDA (as defined in the Senior Credit Facility) for such fiscal year exceeds
$22 million; and provided, that such management fee is not payable in cash (but
accrues) if a cash payment is prohibited by the terms of the Senior Credit
Facility. Castle Harlan has waived payment of fees under the Management
Agreement that would accrue between January 1, 1996 and April 30, 1996 if the
Exchange Offers are consummated on or prior to June 30, 1996.
The Management Agreement is for a term of nine years commencing on December
2, 1993, provided, that (i) it may be terminated on December 2, 1999 on 60 days'
notice if a majority of the directors of Chemical who are not affiliates,
officers, employees or former employees of Castle Harlan or Chemical find that
Castle Harlan has failed to provide services under the Management Agreement
adequately to Chemical and (ii) it terminates on the date on which CHPII or any
other investment fund controlled by John K. Castle and/or Leonard M. Harlan, or
either of them, transfers for consideration to one or more unaffiliated third
parties at least a majority of the shares of INDSPEC Common Stock owned by CHPII
on December 2, 1993 after giving effect to stock splits or other
recapitalizations. Chemical and Castle Harlan intend to enter into an agreement
terminating the Management Agreement, effective as of the Closing Date, except
for continuation of Chemical's obligations to indemnify Castle Harlan as
provided in the Management Agreement.
At the time of the 1993 Transactions, Chemical entered into employment
agreements with Messrs. Spinola, Danner, Lee, Todd and Covelli. Following
consummation of the Merger, INDSPEC anticipates that Messrs. Spinola, Danner,
Lee, Todd and Covelli will enter into new employment agreements or amendments to
their existing employment agreements. See "Management of INDSPEC -- Employment
and Other Agreements."
See also "The Transactions -- Interests of Certain Persons in the
Transactions."
COMPARISON OF RIGHTS OF INDSPEC STOCKHOLDERS
AND OCCIDENTAL STOCKHOLDERS
INDSPEC and Occidental are both organized under the laws of the State of
Delaware. Any differences, therefore, in the rights of INDSPEC Stockholders and
the rights of holders of Occidental Common Stock arise solely from differences
in their respective certificates of incorporation and bylaws and the Rights
Agreement, dated as of October 17, 1986 (the "Rights Agreement"), between
Occidental and Chemical Bank.
The following summary sets forth certain material differences between the
rights of Stockholders and the rights of holders of Occidental Common Stock.
This summary does not purport to be a complete description of the differences
between the rights of such holders, and is subject, and qualified in its
entirety by reference, to the certificate of incorporation and bylaws of
INDSPEC, the amended and restated certificate of
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<PAGE> 83
incorporation of Occidental (the "Occidental Certificate"), the bylaws of
Occidental (the "Occidental Bylaws") and the Rights Agreement.
CERTAIN PROVISIONS OF OCCIDENTAL'S CERTIFICATE AND BYLAWS
The Occidental Certificate provides that Occidental's Board of Directors
shall be divided into three classes, with directors serving three year terms,
and limits the ability of Occidental stockholders to change the number of
directors. Any action required or permitted to be taken by the stockholders of
Occidental must be effected at an annual or special meeting of stockholders of
Occidental and may not be effected by any consent in writing of such
stockholders. The Occidental Bylaws contain certain requirements concerning
advance notice of (i) nominations by stockholders of persons for election to the
Board of Directors and (ii) other matters introduced by stockholders at annual
meetings. INDSPEC's certificate of incorporation and bylaws do not contain such
provisions.
Special meetings of Occidental's stockholders may only be called by
Occidental's Board of Directors or its Chairman. Special meetings of INDSPEC
Stockholders may be called by the President of INDSPEC or by its President or
Secretary upon the written request of a majority of its directors.
OCCIDENTAL RIGHTS
On October 17, 1986, Occidental's Board of Directors declared a dividend of
one right (the "Rights") for each outstanding share of the Occidental Common
Stock to stockholders of record at the close of business on November 7, 1986
(the "Rights Record Date"). The Rights also will be issued in respect of each
share of Occidental Common Stock issued by Occidental between the Rights Record
Date and the earliest of (i) the Distribution Date, (ii) the time at which the
Rights are redeemed as provided in the Rights Agreement, and (iii) the close of
business on October 16, 1996. Subject to the right of the Occidental Board of
Directors to shorten or to lengthen any time period or to make other permitted
changes under the Rights Agreement, the "Distribution Date" is the earlier of
(i) the close of business on the tenth day after the Stock Acquisition Date (as
defined below), and (ii) the close of business on the tenth business day after
the commencement of a tender or exchange offer which would result in the offeror
beneficially owning 30% or more of the shares of Occidental Common Stock then
outstanding. The "Stock Acquisition Date" is the first date of the public
announcement that a person or group of affiliated or associated persons has
acquired, or generally obtained the right to acquire, beneficial ownership of
20% or more of the shares of Occidental Common Stock then outstanding.
Each Right entitles the registered holder initially to purchase from
Occidental a unit consisting of one one-hundredth of a share (a "Unit") of
Junior Participating Preferred Stock at a purchase price of $80 per Unit (the
"Purchase Price"), subject to adjustment. The Junior Participating Preferred
Stock will rank junior to all other series of Occidental's preferred stock with
respect to declaration and payment of dividends and as to distribution of assets
in liquidation, unless the terms of any such series of preferred stock shall
provide otherwise. The Purchase Price may be paid, at the option of the holder,
in cash or shares of Occidental Common Stock having a value equal to the
Purchase Price. The terms of the Rights are set forth in the Rights Agreement.
Initially, the Rights will be deemed to be attached to all certificates
evidencing shares of Occidental Common Stock then outstanding, and no separate
rights certificates will be distributed. Until the Distribution Date, (i) the
Rights will be evidenced by the Occidental Common Stock certificates and will be
transferred with and only with such certificates, (ii) new Occidental Common
Stock certificates issued after November 7, 1986 will contain a notation
incorporating the Rights Agreement by reference, and (iii) the surrender for
transfer of any certificate for Occidental Common Stock outstanding will also
constitute the transfer of the Rights associated with the Occidental Common
Stock evidenced by such certificate. The Rights are not exercisable until the
Distribution Date and will expire at the close of business on October 16, 1996,
unless earlier redeemed by Occidental.
74
<PAGE> 84
PRINCIPAL INDSPEC STOCKHOLDERS
The following table sets forth certain information as of February , 1996
with respect to (1) each person known to INDSPEC to be the beneficial owner of
more than 5% of the outstanding shares of INDSPEC Common Stock or the
outstanding shares of Roundtable Common Stock, (2) each director of INDSPEC, (3)
each Named Executive and (4) all directors and executive officers of INDSPEC
(including Chemical) as a group.
<TABLE>
<CAPTION>
SHARES OF PERCENTAGE OF SHARES OF PERCENTAGE OF
DIRECTORS, NAMED OFFICERS INDSPEC INDSPEC ROUNDTABLE ROUNDTABLE
AND 5% BENEFICIAL OWNERS COMMON STOCK(1) COMMON STOCK(1) COMMON STOCK(1) COMMON STOCK(1)
- ------------------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Roundtable Corp. 29,496 63.11% -- --
150 East 58th Street
New York, NY 10155
Castle Harlan Partners
II, L.P.(2) 29,496 63.11 26,792 90.83%
150 East 58th Street
New York, NY 10115
John K. Castle(2)(3) 30,370 64.98 26,792 90.83
150 East 58th Street
New York, NY 10115
Ernie L. Danner 2,530 5.26 -- --
T. J. Dermot Dunphy -- -- 556 1.89
Vincent R. Scorsone 250 * -- --
Jeffrey M. Siegal(4) 25 * 31 *
Richard Y. Smith(4) 50 * 506 1.72
Frank M. Spinola 2,424 4.98 1,920 6.51
411 Seventh Avenue
Suite 300
Pittsburgh, PA 15219
Fred M. Covelli 1,635 3.40 -- --
William S. Lee 1,935 4.04 -- --
Donald V. Todd 335 * -- --
Pittsburgh National Bank,
as ESOP Trustee 9,600 20.54 -- --
One Oliver Plaza
210 Sixth Avenue
Pittsburgh, PA 15222
Directors and Executive
Officers as a group (13
persons)(2) 41,532 74.28 29,360 99.54
- ---------------
* Less than one percent
(1) The numbers of shares of INDSPEC Common Stock shown as owned include options
and warrants to purchase shares of INDSPEC Common Stock that are exercisable
within 60 days of February , 1996. The numbers and percentages of shares
of INDSPEC Common Stock owned by each director and executive officer and by
all directors and officers as a group assume that such outstanding options
and warrants had been exercised as follows: Mr. Danner -- 1,394; Mr.
Spinola -- 1,944; Mr. Covelli -- 1,335; Mr. Lee -- 1,185; Mr. Todd -- 335;
and all directors and officers as a group (including such
individuals) -- 9,177. The number and percentage of shares of Roundtable
Common Stock shown as owned by Mr. Smith include 445 shares owned by CHPII.
CHPII has issued to Mr. Smith an option to purchase such shares from CHPII.
Beneficial owners of Roundtable Common Stock may also be deemed to be
beneficial owners of the same number of shares of INDSPEC Common Stock.
(2) Includes 29,496 shares of INDSPEC Common Stock owned by Roundtable. Mr.
Castle and Leonard M. Harlan, whose address is 150 East 58th Street, New
York, NY 10155, are the controlling shareholders of the general partner of
the general partner of CHPII and may therefore be deemed to be the
beneficial owners of the shares of INDSPEC Common Stock beneficially owned
by Roundtable and the shares of Roundtable Common Stock beneficially owned
by CHPII. Mr. Castle and Mr. Harlan disclaim beneficial ownership of shares
owned by Roundtable or CHPII other than such shares that represent their
respective pro rata partnership interests in CHPII.
(3) Includes 874 shares of INDSPEC Common Stock held in a voting trust (the
"Voting Trust"), created pursuant to a Voting Trust Agreement dated as of
December 16, 1993 (the "Voting Trust Agreement"), of which John K. Castle is
the Trustee. Mr. Castle disclaims beneficial ownership of the shares held in
the Voting Trust.
(4) Shares of INDSPEC Common Stock held by Messrs. Siegal and Smith are subject
to the Voting Trust Agreement.
</TABLE>
75
<PAGE> 85
Assuming no change in the beneficial ownership set forth in the previous
table, the following table sets forth information, after giving effect to the
Merger, with respect to beneficial ownership of Class A Common Stock and Class B
Common Stock by the persons and entities named in the previous table. The Voting
Trust Agreement will be terminated prior to commencement of the Exchange Offer.
<TABLE>
<CAPTION>
SHARES OF CLASS PERCENTAGE OF SHARES OF CLASS B PERCENTAGE OF PERCENTAGE OF
DIRECTORS, NAMED OFFICERS A COMMON CLASS A COMMON COMMON CLASS B COMMON CLASS A AND CLASS
AND 5% BENEFICIAL OWNERS STOCK(1)(2) STOCK(1) STOCK(1)(2) STOCK(1) B COMMON STOCK(1)
- ---------------------------- --------------- --------------- ----------------- --------------- ------------------
<S> <C> <C> <C> <C> <C>
Castle Harlan Partners II,
L.P. -- -- 26,792 90.83% 57.32%
150 East 58th Street
New York, NY 10115
John K. Castle(3) -- -- 26,792 90.83 57.32
150 East 58th Street
New York, NY 10115
Ernie L. Danner(4) 2,530 13.58% -- -- 5.26
T. J. Dermot Dunphy -- -- 556 1.89 1.19
Vincent R. Scorsone 250 1.45 -- -- *
Jeffrey M. Siegal 25 * 31 -- *
Richard Y. Smith(5) 50 * 506 1.72 1.19
Frank M. Spinola(4) 2,424 12.55 1,920 6.51 8.90
411 Seventh Avenue Suite
300
Pittsburgh, PA 15219
Fred M. Covelli 1,635 8.74 -- -- 3.39
William S. Lee(4) 1,935 10.50 -- -- 4.04
Donald V. Todd(4) 335 1.91 -- -- *
Pittsburgh National Bank,
as ESOP Trustee 9,600 55.68 -- -- 20.54
One Oliver Plaza
210 Sixth Avenue
Pittsburgh, PA 15222
Directors and Executive 11,986 45.37 29,360 99.54 73.95
Officers as a group (12
persons)
- ---------------
* Less than one percent
(1) The numbers of shares of Class A Common Stock shown as owned include options
and warrants to purchase shares of Class A Common Stock that are exercisable
within 60 days of February , 1996. The numbers and percentages of shares
owned by each director and executive officer and by all directors and
officers as a group assume that such outstanding options and warrants had
been exercised as follows: Mr. Danner -- 1,394; Mr. Spinola -- 1,944; Mr.
Covelli -- 1,335; Mr. Lee -- 1,185; Mr. Todd -- 335; and all directors and
officers as a group (including such individuals) -- 9,177. The number and
percentage of shares of Class B Common Stock shown as owned by Mr. Smith
include 445 shares owned by CHPII. CHPII has issued to Mr. Smith an option
to purchase such shares from CHPII.
(2) Pursuant to the terms of the Voting Agreement, each person or entity
identified in the foregoing table as owning shares of Class B Common Stock
following consummation of the Merger has agreed to tender (and not withdraw)
in the Exchange Offer all such shares of Class B Common Stock. Upon
completion of the Exchange Offer, Occidental would own all issued and
outstanding shares of Class B Common Stock. Effective until the Closing
Date, Messrs. Dunphy and Siegal have granted an irrevocable proxy to Mr.
Castle with respect to their shares of Class B Common Stock and Messrs.
Spinola, Danner and Lee have granted an irrevocable proxy to Mr. Castle with
respect to their shares of Class A Common Stock.
(3) Mr. Castle and Leonard M. Harlan, whose address is 150 East 58th Street, New
York, NY 10155, are the controlling shareholders of the general partner of
the general partner of CHPII and may therefore be deemed to be the
beneficial owners of the shares of Class B Common Stock beneficially owned
by CHPII. Mr. Castle and Mr. Harlan disclaim beneficial ownership of shares
owned by CHPII other than such shares that represent their respective pro
rata partnership interests in CHPII.
(4) Pursuant to the terms of the Voting Agreement, each of Messrs. Danner and
Lee have agreed to tender (and not withdraw) in the Exchange Offer all
shares of Class A Common Stock to be owned by them following consummation of
the Merger. It is anticipated that, in the supplement to his employment
agreement, Mr. Todd will agree to tender in the Exchange Offers all shares
of Class A Common Stock that he is entitled to receive upon exercise of
vested Options. Mr. Spinola has agreed to tender all of the Class B Common
Stock owned by him and not to tender in the Exchange Offer any of the shares
of Class A Common Stock owned by him following consummation of the Merger.
(5) Mr. Smith will no longer be a director of INDSPEC following the Merger.
</TABLE>
76
<PAGE> 86
DISSENTING STOCKHOLDERS' RIGHTS OF APPRAISAL
Pursuant to Section 262 of the DGCL, any Stockholder of record who does not
wish to accept the shares of Class A Common Stock or Class B Common Stock to be
issued pursuant to the Merger Agreement in respect of such shares may elect to
have the fair value of his or her shares of INDSPEC Common Stock (exclusive of
any element of value arising from the accomplishment or expectations of the
Merger) judicially determined and paid to him or her in cash, provided that he
or she complies with the provisions of Section 262.
Under Section 262, where a proposed merger is to be submitted for approval
at a meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, must notify each of its stockholders who was a stockholder on the
record date for such meeting with respect to shares for which appraisal rights
are available, that appraisal rights are available, and must include in such
notice a copy of Section 262. THIS PROXY STATEMENT/PROSPECTUS CONSTITUTES SUCH
NOTICE TO THE HOLDERS OF INDSPEC COMMON STOCK ON THE RECORD DATE, AND A COPY OF
SECTION 262 IS ATTACHED TO THIS PROXY STATEMENT/PROSPECTUS AS ANNEX VII. Any
Stockholder who wishes to exercise such appraisal rights or who wishes to
preserve his right to do so should review the following discussion and Annex VII
carefully because the failure to timely and properly comply with the procedures
specified will result in the loss of appraisal rights under Section 262.
The following is a brief summary of the statutory procedures to be followed
by a holder of INDSPEC Common Stock in order to dissent from the Merger and
perfect appraisal rights under Delaware law. THIS SUMMARY IS NOT INTENDED TO BE
COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SECTION 262 OF THE
DGCL, THE TEXT OF WHICH IS SET FORTH IN ANNEX VII HERETO.
If any record holder of INDSPEC Common Stock elects to exercise his or her
right to dissent from the Merger and demand appraisal, such Stockholder must
satisfy each of the following conditions:
(i) such Stockholder must deliver to INDSPEC prior to the vote on the
Merger Agreement at the Special Meeting, a written demand for appraisal of
such Stockholder's shares of INDSPEC Common Stock; and
(ii) such Stockholder must NOT vote in favor of approval and adoption
of the Merger Agreement as such a vote will constitute a waiver of such
Stockholder's right of appraisal and will nullify any previously filed
written demand for appraisal.
If any Stockholder fails to comply with either of these conditions and the
Merger becomes effective, he or she will be entitled to receive the Merger
Consideration, but will have no appraisal rights with respect to his or her
shares of INDSPEC Common Stock. Voting against (whether in person or by proxy),
abstaining from voting or failing to vote on approval and adoption of the Merger
Agreement will not constitute a demand for appraisal within the meaning of
Section 262.
All written demands for appraisal should be sent or delivered to: INDSPEC
Holding Corporation, 411 Seventh Avenue, Suite 300, Pittsburgh, Pennsylvania
15219, Attention: Secretary and should be executed by, or on behalf of, the
holder of record. Such demand must reasonably inform INDSPEC of the identity of
the Stockholder and that such Stockholder is thereby demanding appraisal of his
or her shares of INDSPEC Common Stock.
TO BE EFFECTIVE, A DEMAND FOR APPRAISAL MUST BE EXECUTED BY OR FOR THE
STOCKHOLDER OF RECORD, FULLY AND CORRECTLY, AS SUCH STOCKHOLDER'S NAME APPEARS
ON HIS OR STOCK CERTIFICATE(S) AND CANNOT BE MADE BY THE BENEFICIAL OWNER IF HE
OR SHE DOES NOT ALSO HOLD THE SHARES OF RECORD. THE BENEFICIAL OWNER MUST, IN
SUCH CASE, HAVE THE REGISTERED OWNER SUBMIT THE REQUIRED DEMAND IN RESPECT OF
SHARES.
If INDSPEC Common Stock is owned of record in a fiduciary capacity, such as
by a trustee, guardian or custodian, execution of a demand for appraisal should
be made in such capacity. If INDSPEC Common Stock is owned of record by more
than one person, as a joint tenancy or tenancy in common, such demand must be
executed by or for all joint owners. An authorized agent, including one of two
or more joint owners, may execute the demand for appraisal for a Stockholder of
record; however, the agent must identify the record owner or owners and
expressly disclose the fact that, in executing the demand, he or she is acting
as agent for the record owner. A record owner, such as a broker, who holds
INDSPEC Common Stock as a nominee for
77
<PAGE> 87
others may exercise his or her right of appraisal with respect to the shares
held for one or more beneficial owners, while not exercising such right for
other beneficial owners. In such case, the written demand should set forth the
number of shares as to which the record owner dissents. Where no number of
shares is expressly mentioned, the demand will be presumed to cover all shares
of INDSPEC Common Stock held in the name of such record owner.
With respect to shares held in the ESOP, appraisal rights cannot be
exercised with respect to any shares of stock as to which the participant
directed the ESOP trustee to vote in favor of adoption of the Merger Agreement.
As to shares as to which the participant did not direct to be voted in favor of
adoption of the Merger Agreement, the Administrative Committee of the ESOP will
have discretion as to whether to exercise appraisal rights.
Within ten days after the Effective Time of the Merger, INDSPEC must give
written notice that the Merger has become effective to each Stockholder who has
filed a written demand for appraisal and who did not vote in favor of the Merger
Agreement (each, a "Dissenting Stockholder"). Within 120 days after the
Effective Time of the Merger, but not thereafter, either INDSPEC or any holder
of shares of INDSPEC Common Stock who has complied with the requirements of
Section 262 may file a petition in the Delaware Court of Chancery demanding a
determination of the fair value of the shares of INDSPEC Common Stock held by
all Dissenting Stockholders of the same class entitled to appraisal. INDSPEC
does not currently intend to file such a petition. Inasmuch as INDSPEC has no
obligation to file such a petition, if no such Dissenting Stockholder does so
within the period specified, previous written demands for appraisal of all such
Dissenting Stockholders will be nullified. In any event, at any time within 60
days after the Effective Time of the Merger (or at any time thereafter with the
written consent of INDSPEC), any Dissenting Stockholder who has demanded
appraisal has the right to withdraw the demand and to accept payment of the
Merger Consideration.
If a petition for appraisal is duly filed by a Dissenting Stockholder and a
copy thereof is delivered to INDSPEC, it will then be obligated within 20 days
to provide the Court of Chancery with a duly verified list containing the names
and addresses of all Dissenting Stockholders who have demanded an appraisal of
their shares and with whom agreements as to the value of their shares have not
been reached. After notice to such Dissenting Stockholders by registered or
certified mail and in a Wilmington, Delaware newspaper, the Court of Chancery is
empowered to conduct a hearing upon the petition to determine those Dissenting
Stockholders who have complied with Section 262 and who have become entitled to
appraisal rights under that section. The Court may require the Dissenting
Stockholders who demanded appraisal of their shares to submit their stock
certificates to the Register of Chancery for notation thereon of the pendency of
the appraisal proceedings; and if any Dissenting Stockholder fails to comply
with such direction, the court may dismiss the proceedings as to such Dissenting
Stockholder.
Upon application of INDSPEC or any Dissenting Stockholder entitled to
participate in the appraisal proceeding, the court may permit discovery or other
pretrial proceedings and may proceed to trial upon the appraisal before the
final determination of the Dissenting Stockholders entitled to appraisal. Any
Dissenting Stockholder whose name appears on the list filed with the Court and
who has submitted his or her certificates of stock to the Register in Chancery,
if required to do so, may participate fully in the proceedings until a final
determination that he or she is not entitled to appraisal.
After determination of the Dissenting Stockholders entitled to an
appraisal, the Court of Chancery will appraise the shares of INDSPEC Common
Stock, determining their fair value exclusive of any element of value arising
from the accomplishment or expectation of the Merger. When the value is so
determined, the Court will direct the payment by INDSPEC of such value, with
interest thereon if the Court so determines, to the Dissenting Stockholders
entitled to receive the same, upon surrender to INDSPEC by such Dissenting
Stockholders of the certificates representing such INDSPEC Common Stock. In
determining the fair rate of interest, the court may consider all relevant
factors including the rate of interest which INDSPEC would have had to pay to
borrow money during the pendency of the proceeding. The Court may choose whether
the interest will be simple or compound.
78
<PAGE> 88
In determining fair value, the Court will take into account all relevant
factors. The value so determined could be more or less than or equal to the
Merger Consideration.
Costs of the appraisal proceeding may be determined by the Court and may be
taxed by the Court of Chancery upon the parties thereto (i.e., INDSPEC and
INDSPEC Dissenting Stockholders participating in the appraisal proceeding) as
the Court deems equitable in the circumstances. Upon application of a Dissenting
Stockholder, the Court may order all or a portion of the expenses incurred by
any Dissenting Stockholder in connection with the appraisal proceeding,
including without limitation, reasonable attorneys' fees and the fees and
expenses of experts, to be charged pro rata against the value of all shares
entitled to appraisal.
Any Dissenting Stockholder who has demanded appraisal rights will not,
after the Effective Time of the Merger, be entitled to vote the INDSPEC Common
Stock subject to such demand for any purpose or to receive payment of dividends
or any other distribution with respect to such shares (other than dividends or
distributions, if any, payable to holders of record as of a record date prior to
the Effective Time of the Merger) or to receive payment of the Merger
Consideration; provided, however, that if no petition for appraisal is filed
within 120 days after the Effective Time of the Merger as provided above, or if
such Dissenting Stockholder delivers to INDSPEC a written withdrawal of such
demand for appraisal and an acceptance of the conversion of his or her INDSPEC
Common Stock, either within 60 days after the Effective Time of the Merger, as
provided above, or thereafter with the written approval of INDSPEC, then the
right of such stockholder to appraisal will cease. Additionally, any Dissenting
Stockholder who has demanded appraisal rights will not be entitled to
participate in the Exchange Offers unless such appraisal rights have lapsed or
have been withdrawn as provided in the forgoing sentence, and provided further
that such lapse or withdrawal occurs during the period of time in which the
Exchange Offers remain open. No appraisal proceeding in the Court of Chancery
will be dismissed as to any Dissenting Stockholder without the approval of the
Court.
INDEPENDENT ACCOUNTANTS
A representative of Ernst & Young LLP, INDSPEC's independent public
accountants, is expected to be present at or available by telephone during the
Special Meeting for the purpose of responding to appropriate questions.
LEGAL MATTERS
The validity of the Occidental Common Stock offered hereby will be passed
upon for Occidental by Robert E. Sawyer, Esq., Associate General Counsel of
Occidental. Mr. Sawyer beneficially owns, and has rights to acquire under
employee stock options, an aggregate of less than 1% of the outstanding
Occidental Common Stock.
EXPERTS
The audited financial statements and financial statement schedule of
Occidental Petroleum Corporation incorporated by reference in this Proxy
Statement/Prospectus have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
incorporated by reference herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said reports. Reference is made to
said reports, which include an explanatory paragraph with respect to the
adoption by Occidental, effective January 1, 1992, of Statement of Financial
Accounting Standards No. 106 and No. 109, as discussed in Note 4 to the
consolidated financial statements of Occidental.
The consolidated financial statements of INDSPEC Holding Corporation at
March 31, 1994 and 1995 and for the year ended March 31, 1993, the period from
April 1, 1993 to December 2, 1993, the period from December 3, 1993 to March 31,
1994 and the year ended March 31, 1995, included in the Proxy Statement of
INDSPEC Holding Corporation, which is referred to and made a part of this Proxy
Statement/Prospectus and Registration Statement, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
79
<PAGE> 89
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------------
<S> <C>
INDSPEC Holding Corporation:
Report of Independent Auditors................................................ F-2
Consolidated Balance Sheets as of March 31, 1994 and 1995 and December 31,
1995 (unaudited)........................................................... F-3
Consolidated Statements of Operations for the year ended March 31, 1993, the
period April 1, 1993 to December 2, 1993, the period December 3, 1993 to
March 31, 1994, and the year ended March 31, 1995 and the three- and
nine-month periods ended December 31, 1994 and 1995 (unaudited)............ F-4 to F-5
Consolidated Statements of Common Stockholders' Equity for the year ended
March 31, 1993, the period April 1, 1993 to December 2, 1993, the period
December 3, 1993 to March 31, 1994, and the year ended March 31, 1995 and
the nine months ended December 31, 1995 (unaudited)........................ F-6
Consolidated Statements of Cash Flows for the year ended March 31, 1993, the
period April 1, 1993 to December 2, 1993, the period December 3, 1993 to
March 31, 1994, and the year ended March 31, 1995.......................... F-7
Consolidated Condensed Statements of Cash Flows for the nine months ended
December 31, 1994 and 1995 (unaudited)..................................... F-8
Notes to Financial Statements................................................. F-9 to F-24
</TABLE>
F-1
<PAGE> 90
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
INDSPEC Holding Corporation
We have audited the accompanying balance sheets of INDSPEC Holding
Corporation as of March 31, 1995 and 1994 and the related statements of
operations, common stockholders' equity, and cash flows for the year ended March
31, 1993, the period from April 1, 1993 to December 2, 1993, the period from
December 3, 1993 to March 31, 1994 and the year ended March 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of INDSPEC Holding Corporation
at March 31, 1995 and 1994, and the results of its operations and its cash flows
for the year ended March 31, 1993, the period from April 1, 1993 to December 2,
1993, the period from December 3, 1993 to March 31, 1994 and the year ended
March 31, 1995, in conformity with generally accepted accounting principles.
As discussed in Notes 6 and 7 to the financial statements, the Company
changed its methods of accounting for postretirement benefits other than
pensions and income taxes effective April 1, 1993.
Ernst & Young LLP
Pittsburgh, Pennsylvania
April 28, 1995
F-2
<PAGE> 91
INDSPEC HOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1994 AND 1995 AND DECEMBER 31, 1995 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
MARCH 31,
---------------------
1994 1995
-------- -------- DECEMBER 31,
1995
------------
UNAUDITED
<S> <C> <C> <C>
Current Assets:
Cash................................................... $ 1,023 $ 1,655 $ 1,577
Accounts receivable, principally trade, less allowance
for doubtful accounts of $203 in 1994, and $120 in
1995 and at December 31, 1995....................... 15,621 16,317 15,814
Inventories............................................ 14,369 14,863 20,028
Other.................................................. 1,256 823 908
-------- -------- --------
Total current assets........................... 32,269 33,658 38,327
Investment, at cost...................................... 250 250 250
Property, plant and equipment............................ 106,770 111,662 116,057
Less: accumulated depreciation......................... (2,592) (11,460) (18,353)
-------- -------- --------
Net property, plant and equipment........................ 104,178 100,202 97,704
Patents, net of accumulated amortization of $1,342 in
1994, $5,873 in 1995, and $9,137 at December 31,
1995................................................... 46,813 42,282 39,018
Goodwill, net of accumulated amortization of $330 in
1994, $1,352 in 1995, and $2,113 at December 31,
1995................................................... 40,161 39,211 38,450
Debt issuance costs, net of accumulated amortization of
$339 in 1994, $1,343 in 1995, and $2,247 at December
31, 1995............................................... 7,966 6,519 5,270
Intangible assets, net of accumulated amortization of
$159 in 1994, $574 in 1995, and $928 at December 31,
1995................................................... 6,651 6,236 5,882
-------- -------- --------
$238,288 $228,358 $224,901
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable, trade................................ $ 5,566 $ 4,506 $ 5,508
Accrued payroll and other compensation costs........... 3,189 4,484 4,911
Accrued interest....................................... 3,980 3,235 909
Other accrued expenses................................. 2,086 2,357 3,169
Current portion of long-term debt...................... 8,750 7,700 3,254
-------- -------- --------
Total current liabilities...................... 23,571 22,282 17,751
Long-term debt........................................... 180,988 167,108 159,328
Environmental and other reserves......................... 1,583 1,709 1,698
Pension and postretirement obligations................... 13,232 13,708 14,560
Deferred income taxes.................................... 11,500 11,710 14,593
-------- -------- --------
Total liabilities.............................. 230,874 216,517 207,930
Warrants to purchase common stock (net of issuance costs
of $64)................................................ 177 430 1,072
Common stock held by ESOP................................ 4,548 9,347 9,347
Common stockholders' equity:
Voting common stock, $.01 par value 150,000 shares
authorized and 46,728 shares outstanding at March
31, 1994 and 1995 and 46,738 outstanding at December
31, 1995............................................ 1 1 1
Capital in excess of par............................... 2,694 -- 5
Retained (deficit) earnings............................ (6) 2,063 6,546
-------- -------- --------
Total common stockholders' equity.............. 2,689 2,064 6,552
-------- -------- --------
$238,288 $228,358 $224,901
======== ======== ========
</TABLE>
See accompanying notes
F-3
<PAGE> 92
INDSPEC HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1993, THE PERIOD APRIL 1, 1993 TO DECEMBER 2, 1993,
THE PERIOD DECEMBER 3, 1993 TO MARCH 31, 1994, AND THE YEAR ENDED MARCH 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PREDECESSOR
-------------------------
APR. 1, 1993 TO DEC. 3, 1993 TO
1993 DEC. 2, 1993 MAR. 31, 1994 1995
------- --------------- --------------- --------
<S> <C> <C> <C> <C>
Net sales..................................... $99,829 $70,778 $33,094 $117,352
Operating expenses:
Cost of sales............................... 56,889 40,067 19,123 64,042
Depreciation and amortization............... 14,064 8,291 4,423 15,484
Selling, research, general, and
administrative expenses.................. 7,802 5,202 3,591 14,135
Provision for loss (recovery) on Tuscaloosa
facility................................. 2,270 (1,000) -- --
-------- ------- ------- --------
Total operating expenses............ 81,025 52,560 27,137 93,661
-------- ------- ------- --------
Operating profit.............................. 18,804 18,218 5,957 23,691
Other income (expense):
Provision for (loss) recovery on Soviet
receivable............................... (1,300) 737 -- --
Other, net.................................. 50 (366) 66 (407)
-------- ------- ------- --------
(1,250) 371 66 (407)
-------- ------- ------- --------
Income before interest expense, provision for
income taxes, extraordinary items and
cumulative effect of changes in accounting
methods..................................... 17,554 18,589 6,023 23,284
Interest expense.............................. 15,999 10,278 5,690 17,389
Amortization of debt issuance costs........... 896 544 339 1,018
-------- ------- ------- --------
Income before income taxes, cumulative effect
of changes in accounting methods, and
extraordinary items......................... 659 7,767 (6) 4,877
Provision for and in lieu of income taxes..... 378 2,621 -- 450
-------- ------- ------- --------
Income before extraordinary items and
cumulative effect of changes in accounting
methods..................................... 281 5,146 (6) 4,427
Extraordinary loss on reorganization.......... -- (8,470) -- --
Extraordinary credit -- utilization of tax
loss carryforwards.......................... 302 -- -- --
Cumulative effect of changes in accounting
methods..................................... 2,232 -- --
-------- ------- ------- --------
Net income (loss)............................. $ 583 $(1,092) $ (6) $ 4,427
======== ======= ======= ========
Income (loss) per share of common stock before
extraordinary items and changes in
accounting methods.......................... $(36.52) $ 24.52 $ (0.13) $ 79.61
Earnings (loss) per share effect of
extraordinary items......................... 3.46 (97.25) -- --
Earnings per share effect of accounting
methods changes............................. -- 25.63 -- --
-------- ------- ------- --------
Net income (loss) per share of common stock... $(33.06) $(47.10) $ (0.13) $ 79.61
======== ======= ======= ========
</TABLE>
See accompanying notes
F-4
<PAGE> 93
INDSPEC HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE- AND NINE-MONTH PERIODS ENDED DECEMBER 31, 1994 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31 DECEMBER 31
----------------------- -----------------------
1994 1995 1994 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
UNAUDITED UNAUDITED UNAUDITED UNAUDITED
Net sales........................................ $31,105 $32,393 $82,907 $95,012
Operating expenses:
Cost of sales.................................. 17,812 16,455 46,206 50,187
Depreciation and amortization.................. 3,430 3,923 10,901 11,445
Selling, research, general, and administrative
expenses.................................... 3,466 3,973 9,775 11,358
------- ------- ------- -------
Total operating expenses............... 24,708 24,351 66,882 72,990
------- ------- ------- -------
Operating profit................................. 6,397 8,042 16,025 22,022
Other expense.................................... (18) (287) (142) (501)
------- ------- ------- -------
Income before interest expense, amortization of
debt issuance costs, provision for income
taxes, and extraordinary item.................. 6,379 7,755 15,883 21,521
Interest expense................................. 4,333 4,137 12,852 12,663
Amortization of debt issuance costs.............. 182 329 763 940
------- ------- ------- -------
Income before provision for income taxes and
extraordinary item............................. 1,864 3,289 2,268 7,918
Provision for income taxes....................... 477 1,283 (217) 3,135
------- ------- ------- -------
Income before extraordinary item................. 1,387 2,006 2,485 4,783
Extraordinary gain on bond redemption (net of
tax)........................................... -- -- -- 342
------- ------- ------- -------
Net income....................................... $ 1,387 $ 2,006 $ 2,485 $ 5,125
======= ======= ======= =======
Income per share of common stock before
extraordinary item............................. $ 26.71 $ 36.08 $ 47.86 $ 86.02
Earnings per share effect of extraordinary
item........................................... -- -- -- 6.15
------- ------- ------- -------
Net income per share of common stock............. $ 26.71 $ 36.08 $ 47.86 $ 92.17
======= ======= ======= =======
</TABLE>
See accompanying notes
F-5
<PAGE> 94
INDSPEC HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED MARCH 31, 1993, THE PERIOD APRIL 1, 1993 TO DECEMBER 2, 1993,
THE PERIOD DECEMBER 3, 1993 TO MARCH 31, 1994, AND THE YEAR ENDED MARCH 31, 1995
AND THE NINE MONTHS ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL COMMON
CLASS A CLASS B RETAINED STOCKHOLDERS'
VOTING NONVOTING CAPITAL IN EARNINGS EQUITY
COMMON STOCK COMMON STOCK EXCESS OF PAR (DEFICIT) (DEFICIT)
------------ ------------ ------------- --------- -------------
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1992........... $ 1 $ 1 $ 4,337 $ (23,504) $ (19,165)
Net income........................ -- -- -- 583 583
Preferred stock dividends and
accretion....................... -- -- -- (2,541) (2,541)
Adjustment to reflect warrant
valuation....................... -- -- -- (921) (921)
Adjustment to reflect ESOP
valuation....................... -- -- 400 -- 400
-- --
------- -------- --------
Balance, March 31, 1993........... 1 1 4,737 (26,383) (21,644)
Net income........................ -- -- -- (1,092) (1,092)
Preferred stock dividends and
accretion....................... -- -- -- (2,396) (2,396)
Adjustment to reflect warrant
valuation....................... -- -- -- (614) (614)
Adjustment to reflect ESOP
valuation....................... -- -- (448) -- (448)
-- --
------- -------- --------
Balance, December 2, 1993......... 1 1 4,289 (30,485) (26,194)
Adjustment to reflect acquisition
accounting...................... -- (1) (1,595) 30,485 28,889
Net income........................ -- -- -- (6) (6)
-- --
------- -------- --------
Balance, March 31, 1994........... 1 -- 2,694 (6) 2,689
Net income........................ -- -- -- 4,427 4,427
Adjustment to reflect warrant
valuation....................... -- -- -- (253) (253)
Adjustment to reflect ESOP
valuation....................... -- -- (2,694) (2,105) (4,799)
-- --
------- -------- --------
Balance, March 31, 1995........... 1 -- -- 2,063 2,064
Issuance of common stock.......... -- -- 5 -- 5
Net income........................ -- -- -- 5,125 5,125
Adjustment to reflect warrant
valuation....................... -- -- -- (642) (642)
-- --
------- -------- --------
Balance, December 31, 1995
(unaudited)..................... $ 1 $ -- $ 5 $ 6,546 $ 6,552
== == ======= ======== ========
</TABLE>
See accompanying notes
F-6
<PAGE> 95
INDSPEC HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED MARCH 31, 1993, THE PERIOD APRIL 1, 1993 TO DECEMBER 2, 1993,
THE PERIOD DECEMBER 3, 1993 TO MARCH 31, 1994 AND THE YEAR ENDED MARCH 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR
---------------------------
APR. 1, 1993 TO DEC. 3, 1993 TO
1993 DEC. 2, 1993 MAR. 31, 1994 1995
-------- --------------- --------------- --------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................... $ 583 $ (1,092) $ (6) $ 4,427
Adjustments to reconcile net income (loss) to net cash provided
from operating activities:
Noncash charges related to Transactions........................... -- 2,787 -- --
Noncash interest accrued on subordinated discount notes........... -- -- 3,395 9,699
Depreciation and amortization..................................... 14,064 8,291 4,423 15,484
Amortization of debt issuance costs and interest rate protection
costs........................................................... 896 544 339 1,415
Provisions for losses (net recovery) on accounts receivable....... 1,380 (1,325) 39 (83)
Provision for loss (recovery) on discontinuance of synthetic
sodium sulfite production....................................... 2,270 (1,000) -- --
Increase (decrease) in pension and postretirement obligations..... (522) 3,676 378 381
Unrealized foreign exchange (gains) and losses.................... (14) -- -- 831
Net deferred tax benefit recognized............................... -- (8,211) -- 210
Change in assets and liabilities:
(Increase) decrease in accounts receivable........................ (2,671) 856 (1,243) (1,444)
(Increase) decrease in inventories................................ (239) 626 239 (494)
(Increase) decrease in other current assets....................... 55 (392) (360) 433
Increase (decrease) in accounts payable........................... 394 1,681 (430) (1,060)
Increase (decrease) in accrued expenses........................... 196 (666) 5 1,661
Increase (decrease) in accrued interest........................... 299 (2,873) 585 (745)
Increase (decrease) in environmental and other reserves........... 11 (39) 47 126
-------- -------- -------- --------
Total adjustments................................................... 16,119 3,955 7,417 26,414
-------- -------- -------- --------
Net cash provided from operating activities......................... 16,702 2,863 7,411 30,841
Cash flows from investing activities:
Additions to property, plant, and equipment......................... (5,088) (2,975) (1,520) (5,580)
-------- -------- -------- --------
Net cash used in investing activities............................... (5,088) (2,975) (1,520) (5,580)
Cash flows from financing activities:
Borrowing of new term debt.......................................... -- -- 100,000 --
Proceeds (retirement) of subordinated discount debentures........... -- -- 90,076 (10,329)
Financing costs of new debt instruments............................. -- -- (11,246) --
Retirement of 14.25% subordinated debentures........................ -- -- (75,000) --
Repayment of junior subordinated debentures......................... -- -- (18,700) --
Payment of cash dividends on preferred stock........................ (2,453) (1,151) -- --
Financing expenses incurred (repaid)................................ -- 11,237 (11,237) --
Repurchase of common stock, warrants, and stock options............. -- (33,804) -- --
Issue of common stock............................................... -- 12,450 -- --
Issue (repayment) of redemption note................................ -- 21,354 (21,354) --
Repayment of senior bank debt....................................... (12,315) (6,551) (56,754) (13,750)
Net borrowings (repayments) on line of credit....................... 3,330 (1,650) (3,450) (550)
-------- -------- -------- --------
Net cash provided by (used in) financing activities................. (11,438) 1,885 (7,665) (24,629)
-------- -------- -------- --------
Increase (decrease) in cash......................................... 176 1,773 (1,774) 632
Cash at beginning of period......................................... 848 1,024 2,797 1,023
-------- -------- -------- --------
Cash at end of period............................................... $ 1,024 $ 2,797 $ 1,023 $ 1,655
======== ======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest........................................................ $ 15,982 $ 13,237 $ 1,747 $ 8,460
======== ======== ======== ========
Supplemental disclosures of noncash items:
Accretion of preferred stock...................................... $ 88 $ 59 -- --
======== ======== ======== ========
Preferred stock dividends......................................... -- $ 1,186 -- --
======== ======== ======== ========
Increase in valuation of warrants................................. $ 921 $ 614 -- $ 253
======== ======== ======== ========
Increase (decrease) in valuation of ESOP.......................... $ (400) $ 448 $ -- $ 4,799
======== ======== ======== ========
</TABLE>
See accompanying notes
F-7
<PAGE> 96
INDSPEC HOLDING CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1994 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1994 1995
-------- --------
UNAUDITED UNAUDITED
<S> <C> <C>
Cash flows from operating activities:
Net income........................................................... $ 2,485 $ 5,125
Adjustments to reconcile net income to cash provided from operating
activities:
Noncash interest on subordinated notes............................ 6,902 7,263
Depreciation and amortization..................................... 10,901 11,445
Write-off of debt issuance costs.................................. 1,192 1,249
Increase in postretirement benefits............................... 388 852
(Decrease) increase in deferred tax liabilities................... (217) 2,883
Change in assets and liabilities.................................. 759 (2,501)
-------- --------
Net cash provided by operating activities.................... 22,410 26,316
Cash flows from investing activities:
Additions to property, plant, and equipment.......................... (4,422) (4,568)
-------- --------
Net cash used in investing activities........................ (4,422) (4,568)
Cash flows from financing activities:
Repurchase of subordinated notes..................................... (10,097) (8,265)
Proceeds from issuance of common stock............................... -- 5
Repayment of senior bank debt........................................ (6,563) (15,266)
Net borrowings on line of credit..................................... (1,300) 1,700
-------- --------
Net cash used in financing activities........................ (17,960) (21,826)
Increase (decrease) in cash............................................ 28 (78)
Cash at beginning of period............................................ 1,023 1,655
-------- --------
Cash at end of period.................................................. $ 1,051 $ 1,577
======== ========
</TABLE>
See accompanying notes
F-8
<PAGE> 97
INDSPEC HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995
1. THE COMPANY
INDSPEC Chemical Corporation (the "Company"), a wholly owned subsidiary of
INDSPEC Holding Corporation, is engaged principally in the business of
developing, producing and marketing resorcinol, resorcinol-based resins and
adhesives and other resorcinol derivatives. The Company, through its Petrolia,
Pennsylvania plant, is the largest producer of resorcinol in the world and the
sole commercial producer in the United States. Resorcinol and resorcinol-based
resins are used primarily as adhesives to bond steel or fiber cords to rubber in
the manufacture of tires and also in specialty chemical applications. In
addition, the Company produces sulfite, both as a by-product of its resorcinol
production and synthetically at its plant in Tuscaloosa, Alabama, and saltcake
(sodium sulfate) as by-products of the resorcinol production which are marketed
to the paper, water treatment and glass industries. Resorcinol and
resorcinol-based products accounted for approximately 92%, 95%, 95%, and 96% of
net sales for 1993, the period April 1, 1993 to December 2, 1993, the period
December 3, 1993 to March 31, 1994, and 1995, respectively. The balance of sales
were comprised of sulfite and saltcake products.
The Company was formed on October 25, 1993 under the name Specialty
Acquisition Sub, Inc. and after a series of transactions succeeded to, and now
operates, the business previously operated by INDSPEC Chemical Corporation ("Old
INDSPEC" or "Predecessor"), and was renamed INDSPEC Chemical Corporation. The
Company is a wholly owned subsidiary of INDSPEC Technologies, Ltd., a
Pennsylvania Business Trust, which is in turn 100% owned by INDSPEC Holding
Corporation (formerly Specialty Acquisition Holdings, Inc., and herein referred
to as "Holdings"). Old INDSPEC was formed in 1988 by management and an investor
group to acquire, in a leveraged transaction (the "Original Acquisition"), the
business of the Industrial Specialty Chemicals division of Koppers Company,
Inc., now known as Beazer East, Inc. ("Koppers" or "BEI"). Throughout these
notes, the term "the Company" is also used to include the operations of Old
INDSPEC, where appropriate, unless such inclusion would be confusing.
Effective as of October 26, 1993, Old INDSPEC and CH NewCo, Inc. ("CH
NewCo") entered into a Stock Acquisition Agreement (the "Acquisition Agreement")
pursuant to which Old INDSPEC agreed to sell shares of its common stock to CH
NewCo (the "Stock Sale"). CH NewCo assigned its rights under the Acquisition
Agreement, including the right to purchase the common stock of Old INDSPEC, to
Castle Harlan Partners II L.P. ("CHPII" or "Buyer"), a private equity investment
fund which is an affiliate of CH NewCo.
On November 2, 1993, Old INDSPEC began a tender offer for its common stock
and certain other securities (the "Tender Offer"). Following consummation of the
Stock Sale and the Tender Offer on December 2, 1993, INDSPEC succeeded to the
business of Old INDSPEC, in substantially the form previously conducted by Old
INDSPEC, as a result of two mergers (the "Mergers"), an asset transfer and
assumption by INDSPEC of all of Old INDSPEC's obligations (the "Asset
Transfer"). On December 2, 1993, after consummation of the Mergers and the Asset
Transfer, INDSPEC issued $157.5 million face amount of 11 1/2% Senior
Subordinated Discount Notes due 2003 that produced gross proceeds of $90.0
million to the Company, (ii) borrowed $106.0 million under the New Senior Credit
Facility (as defined), and (iii) repaid all of Old INDSPEC's debt obligations
under its bank loans and subordinated debt indentures (the "Refinancings"). The
Tender Offer, the Stock Sale, the Mergers, the Asset Transfer and the
Refinancings are referred to collectively herein as the "Transactions." As a
result of the consummation of the Transactions, CHPII owns approximately 57% of
the outstanding common stock of Holdings. Substantially all of the balance of
the stock is owned by management, employees, and the Company's Employee Stock
Ownership Trust ("ESOP").
The acquisition was accounted for as a purchase for financial statement
purposes, subject to recapitalization accounting as required by the Emerging
Issues Task Force Issue 88-16 (the EITF) for the
F-9
<PAGE> 98
INDSPEC HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995
portion of the purchase price that was funded by the retention of shares in
Holdings by certain management investors. These management investors owned
approximately 15.4% of Old INDSPEC, and approximately 29.7% of the Company on a
fully diluted basis. The EITF contains a monetary test that provides that if
less than 80% of the total monetary consideration is in the form of new cash
infusion by the purchasers, then the assets acquired in the acquisition and the
shareholders' equity contributed by continuing management will have carryover
basis to the extent of the ratio of non-monetary consideration to total
consideration in the transaction. Accordingly, balance sheet adjustments have
been made to reflect the basis of the acquired assets and stockholders' equity
at predecessor basis, rather than fair market value, to the extent of the
percentage of non-monetary consideration.
The total purchase price was determined as follows (in thousands):
<TABLE>
<S> <C>
Assumption of liabilities......................................... $235,143
Issue of common stock............................................. 12,450
Continuing management shares valued at predecessor basis.......... (5,207)
--------
Total................................................... $242,386
========
</TABLE>
This purchase price was allocated as follows (in thousands):
<TABLE>
<S> <C>
Current assets (at cost basis of predecessor)..................... $ 33,086
Fixed assets...................................................... 105,289
Intangible assets................................................. 54,965
Goodwill.......................................................... 40,491
Debt issuance costs............................................... 8,305
Other investments................................................. 250
--------
$242,386
========
</TABLE>
As part of the Transactions and early retirement of debt, Old INDSPEC
incurred transaction expenses during the period April 1, 1993 to December 2,
1993. These transaction expenses totalled $14.0 million (before tax benefit of
$5.5 million) and consisted of $8.1 million in premiums for the early retirement
of debt and preferred stock, $3.6 million to write off unamortized financing
costs and to properly reflect the face amount of junior subordinated debentures
that were originally issued at a discount, $.6 million to unwind interest rate
swap agreements, and $1.7 million of net interest cost for the defeasance of the
debt and junior subordinated debentures of Old INDSPEC. These costs are
reflected as an extraordinary expense of Old INDSPEC. Additionally, the Company
incurred $11.2 million of transaction costs as follows: fees associated with the
subordinated debentures of $4.2 million, fees associated with the term debt of
$4.2 million, and other fees of $2.8 million. These fees have been capitalized
and are being amortized over the life of the related debt or goodwill.
F-10
<PAGE> 99
INDSPEC HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies of the Company are as follows:
Inventories
Inventories are valued at the lower of cost, utilizing the first-in,
first-out (FIFO) method, or market. Supplies are valued principally at average
cost. At March 31, 1994 and March 31, 1995, inventories consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Raw materials............................................ $ 806 $ 1,052
Work-in-process.......................................... 384 410
Finished goods........................................... 10,810 10,920
Supplies................................................. 2,369 2,481
------- -------
$14,369 $14,863
======= =======
</TABLE>
Investment
The investment is valued at the lower-of-cost or market value. At March 31,
1994 and March 31, 1995, the investment consisted of common stock in a
cooperative insurance company which provides a portion of the Company's
liability coverage.
Property, Plant, and Equipment
Property, plant, and equipment are recorded at cost as of March 31, 1994
and 1995 after purchase accounting adjustments in 1994 (including provision for
EITF 88-16) and consist of the following (in thousands):
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Land and improvements.................................. $ 565 $ 702
Buildings.............................................. 3,089 3,639
Machinery and equipment................................ 98,720 103,251
Furniture and fixtures and computer equipment.......... 866 1,043
Construction in progress............................... 3,530 3,027
-------- --------
106,770 111,662
Less accumulated depreciation.......................... (2,592) (11,460)
-------- --------
$104,178 $100,202
======== ========
</TABLE>
Cost for property, plant, and equipment acquired in the Transactions
represents a portion of the purchase price allocated to such assets based on an
appraisal of their fair market values at the date of purchase. Maintenance and
repairs are expensed as incurred. Expenditures which significantly increase
asset values or extend useful lives are capitalized. Interest is capitalized on
self-constructed assets. During the year ended March 31, 1993, the period April
1, 1993 to December 2, 1993, the period December 3, 1993 to March 31, 1994 and
the year ended March 31, 1995, interest cost associated with assets under
construction of approximately $282,000, $111,000, $76,000, and $254,000,
respectively, was capitalized. Major classes of
F-11
<PAGE> 100
INDSPEC HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995
property, plant, and equipment are depreciated using the straight-line basis for
financial statement purposes over their estimated useful lives as follows:
<TABLE>
<S> <C>
Buildings..................................... 40 years
Machinery and equipment....................... 2-20 years
Furniture and fixtures........................ 5 years
</TABLE>
Leasehold interests are depreciated over the life of the related lease.
Intangible Assets and Goodwill Arising from Acquisition of the Business
A portion of the purchase price was allocated to intangible assets,
primarily patents, licenses, contracts, and trade names based on an appraisal of
their fair values. Intangible assets are amortized using the straight-line
method over their estimated useful lives as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C> <C>
Patents......................... $48,155 $48,155 11 years
Licenses and contracts.......... 630 630 3-9 years
Trade names..................... 760 760 20 years
Other intangibles............... 5,420 5,420 6-40 years
------- -------
54,965 54,965
Less accumulated amortization... (1,501) (6,447)
------- -------
$53,464 $48,518
======= =======
</TABLE>
The excess of the purchase price paid over net assets acquired is recorded
as goodwill and amortized over 40 years using the straight-line method. The
carrying value of goodwill will be reviewed if the facts and circumstances
suggest that it may be impaired.
Depreciation and Amortization
Depreciation and amortization, as presented in the financial statements, is
allocable to cost of sales, selling, research, shipping and delivery, and
general and administrative expense as follows in thousands:
<TABLE>
<CAPTION>
PREDECESSOR
---------------------
APRIL 1, DECEMBER 3,
1993 TO 1993 TO
DECEMBER 2, MARCH 31,
1993 1993 1994 1995
------- ----------- ----------- -------
<S> <C> <C> <C> <C>
Cost of sales......................... $13,242 $7,774 $4,024 $14,226
Selling, research, general and
administrative...................... 822 517 399 1,258
------- ------ ------ -------
$14,064 $8,291 $4,423 $15,484
======= ====== ====== =======
</TABLE>
Debt Issuance Costs
Debt issuance costs are amortized over the term of the applicable debt
agreement using the interest method. Amortization of debt issuance costs
(exclusive of the write-off of unamortized debt issue costs as a result of the
Transactions in the amount of $2.9 million) for the year ended March 31, 1993,
the period April 1, 1993 to December 2, 1993, the period December 3, 1993 to
March 31, 1994, and the year ended March 31, 1995, were $896,000, $544,000,
$339,000, and $1,018,000, respectively.
F-12
<PAGE> 101
INDSPEC HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995
Income Taxes
The Company provides for income taxes based on temporary differences in the
basis of assets and liabilities between amounts used for financial statement and
income tax purposes.
Foreign Exchange Transactions
Sales denominated in foreign currencies and the related accounts receivable
are recognized in U.S. dollars using the exchange rates in effect at the date of
the sale (measurement dates). The Company had $4,300,000 and $5,100,000 of trade
receivables denominated in foreign currencies at March 31, 1994 and March 31,
1995, respectively. In addition, at March 31, 1995, the Company had forward
exchange contracts, which mature throughout 1995, to purchase $7,400,000 with
Dutch Guilders. Unrealized gains and losses are recognized in income for the
effect of fluctuations in exchange rates from the measurement dates to the end
of the Company's reporting period.
Reclassification
Certain reclassifications have been made to prior financial statements to
conform to the March 31, 1995 presentations. The reclassifications had no effect
on income.
3. SOVIET ACCOUNT RECEIVABLE
In March 1993 Old INDSPEC established a reserve in the amount of $1.3
million for the possible uncollectibility of a receivable that originated in
1990 from the sale of resorcinol to the Soviet Union. In September, 1993 Old
INDSPEC agreed to accept $900,000 as payment in full for this receivable. After
payment of expenses related to the collection, Old INDSPEC recognized income of
$737,000 on the collection of the receivable.
4. LONG-TERM DEBT AND CREDIT ARRANGEMENTS
Long-term debt outstanding is summarized as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31, 1994 MARCH 31, 1995
-------------- --------------
<S> <C> <C>
Term Loan Facility.............................. $ 97,812 $ 84,062
Senior subordinated discount notes due December
2, 2003....................................... 90,076 89,446
Revolving Loan Facilities....................... 1,850 1,300
-------- --------
189,738 174,808
Less current portion of long-term debt.......... (8,750) (7,700)
-------- --------
$180,988 $167,108
======== ========
</TABLE>
As part of the Transactions the Company entered into the New Senior Credit
Facility with Bankers Trust Company, as Agent. The New Senior Credit Facility
consists of (i) a term loan facility in an aggregate principal amount of $70.0
million (the "A Term Loan Facility"), (ii) a second term loan facility in an
aggregate principal amount of $30.0 million (the "B Term Loan Facility") (the A
Term Loan Facility and the B Term Loan Facility are collectively referred to as
the "Term Loan Facilities") and (iii) a revolving loan facility in an aggregate
principal amount of $15.0 million (the "Revolving Loan Facility" and, together
with the Term Loan Facilities, the "Credit Facilities").
F-13
<PAGE> 102
INDSPEC HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995
The borrowings under the New Senior Credit Facility bear interest at
INDSPEC's option (i) at the Base Rate in effect from time to time plus (a) with
respect to loans under the Revolving Loan Facility and the A Term Loan Facility,
1 3/8% and (b) with respect to the B Term Loan Facility, 1 5/8% or (ii) subject
to certain limitations at the Eurodollar rate (adjusted for maximum reserves) as
determined by the Agent for the respective interest period plus (a) with respect
to loans under the Revolving Loan Facility and the A Term Loan Facility, 2 3/8%
and (b) with respect to the B Term Loan Facility, 2 5/8%. "Base Rate" shall mean
the higher of (x) 0.5% in excess of the Federal Reserve reported certificate of
deposit rate and (y) the rate the Agent announces from time to time as its prime
lending rate, as in effect from time to time. The New Senior Credit Facility
also provides for the payment of a commitment commission of 0.5% per annum on
the daily average unused amount of the commitments under the Revolving Loan
Facility. For the period December 3, 1993 to March 31, 1994 and for the year
ended March 31, 1995, the effective interest rate on the Credit Facilities,
including amortization of debt issuance costs, was 7.5% and 8.8%, respectively.
In addition to the borrowings summarized above, there are letters of credit
outstanding as of March 31, 1995 totaling $500,000.
Also as part of the Transactions, the Company issued $157.5 million
aggregate amount of 11 1/2% Senior Subordinated Discount Notes due 2003 (the
"Notes") to complete the funding necessary for the acquisition. The Notes were
issued at a substantial discount from their principal amount and provided gross
proceeds of $90.0 million. Interest on the Notes will be payable semi-annually,
in cash, on June 1 and December 1, commencing June 1, 1999 at the rate of
11 1/2% per annum. The Notes are callable beginning December 2, 1998, at a
premium.
During the fiscal year ended March 31, 1995 the Company redeemed $17.6
million face amount of Notes in return for a cash payment of $10.2 million.
After giving effect to unamortized debt costs attributable to the redeemed
Notes, the Company had no gain or loss on the redemption. In December, 1994, the
Company entered into an interest rate swap arrangement with Lehman Brothers,
Inc. ("Lehman") whereby the Company agreed to pay Lehman a floating rate of
LIBOR plus 2.25% for a six-month period on $7.4 million expended by Lehman to
purchase $12.9 million of Notes. In return for the Company's cash payment of
interest, Lehman will pay the Company any gain on the Notes (if the Company does
not elect to purchase the notes) at the end of the six-month period or the
Company will reimburse Lehman for any loss. The Company received the right, but
not the obligation, to purchase the Notes held by Lehman for $7.4 million at any
time during the six-month period which expires on May 31, 1995. As of March 31,
1995 the Company had not exercised its purchase option.
On November 30, 1993 Old INDSPEC exercised its option to exchange its
Convertible Preferred Stock for 14% Junior Subordinated Exchange Debentures (the
"Junior Debentures") with a face amount of $18,708,000. The preferred stock was
originally issued as part of a unit that consisted of preferred stock and
warrants to purchase common stock of Old INDSPEC and was carried on the
Company's books at $17,960,000 which reflected the original allocation of value
between the preferred stock and the warrants, adjusted for accretion of the
preferred stock since its issuance in 1989, and for issuance of additional
preferred stock as dividends. As part of the Transactions, the Company retired
all the Junior Debentures by exercising its rights to defease the obligations by
escrowing sufficient funds to fully retire the obligations at their first call
date of April 20, 1994. As of April 20, 1994, the trustee of the escrow for the
Junior Debentures distributed all the funds and fully extinguished the
obligations. Since the bonds were defeased as of December 2, 1993, they were
accounted for as fully retired as of that date. See the discussion of preferred
stock below.
The debt agreements contain various restrictions pertaining to: incidence
of additional indebtedness, mergers, consolidations or acquisitions and
disposition of assets; investments; transactions with affiliates; retirement of
subordinated debt; and redemption of stock. Essentially all of the Company's
assets are pledged
F-14
<PAGE> 103
INDSPEC HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995
as collateral under the Credit Facilities. In addition, the debt agreements
require that the Company meet certain financial tests and generally limit the
payment of dividends, except in certain circumstances relating to dividends on
permitted preferred stock.
On June 30, 1995, the Company will make a $5.4 million prepayment of the
Term Loan Facility as required by the excess cash flow recapture provisions of
the Credit Facilities. The aggregate long-term maturities, adjusted for
prepayments, for the years ending March 31, are as follows: 1996- $7,700,000;
1997-$12,250,000; 1998- $19,250,000; 1999- $20,471,000; 2000- $12,750,000; and
years thereafter- $102,387,000.
5. PREFERRED STOCK AND WARRANTS
On April 27, 1989, Old INDSPEC sold 75 units, each consisting of 100 newly
issued shares of Nonvoting 14% Exchangeable Preferred Stock, Series A, with
detachable put warrants for $15,000,000 (less issuance costs of $480,000). As
discussed in Note 4 the Preferred Stock was converted into Junior Debentures on
November 30, 1993 and then were retired as part of the Transactions. The put
warrants were retained as obligations of Holdings.
Each detachable put warrant entitles the holder (i) to purchase a share of
common stock of Holdings for $100 or to require Holdings to repurchase the
warrant for its fair market value. The put warrants were valued at $885,000
(less issuance costs of $64,000) when issued based on an appraisal performed by
an independent party. The put warrants are not exercisable for five years from
the date of the original issue. Any liability from the increase in the value of
warrants was recognized on a straight-line basis in each quarterly period
thereafter. To reflect this liability, the Predecessor increased the valuation
of the warrants to $1,742,000 as of March 31, 1993 and to $2,356,000 as of the
date of the Transactions. The remaining put warrants are valued at $430,200 as
of March 31, 1995.
Old INDSPEC paid cash dividends on its preferred stock in the amount of
$2,453,000 and $1,151,000, respectively, for the fiscal year ended March 31,
1993, and for the period April 1, 1993 to December 2, 1993, and paid dividends
on the preferred stock in the form of additional shares of preferred stock in
the amount of 0 shares and 593 shares, respectively, for the fiscal year ended
March 31, 1993, and for the period April 1, 1993 to December 2, 1993. Since the
preferred stock was converted into the Junior Debentures on November 30, 1993,
no dividends were paid or accrued by the Company after November 30, 1993.
6. EMPLOYEE BENEFITS
Pension Plans
Under the terms of the Original Acquisition, Old INDSPEC adopted a salaried
employee retirement plan covering all salaried employees effective December 16,
1988 and assumed the assets and obligations of the hourly retirement plans at
each of the two plants it acquired from Koppers. Old INDSPEC thus had three
pension plans. Then on December 31, 1992, Old INDSPEC merged the retirement plan
for Tuscaloosa hourly employees into the retirement plan for salaried employees,
with benefits for the Tuscaloosa employees in effect frozen due to the shutdown
of the Tuscaloosa plant in 1992. Plan assets primarily include marketable debt
instruments and equity securities. The Company's funding policy is to make
annual contributions as required by applicable regulations. The plans generally
provide benefits using a formula based upon employee compensation and years of
service. These plans were adopted by the Company as part of the Transactions.
F-15
<PAGE> 104
INDSPEC HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995
Net periodic pension cost for the year ended March 31, 1993, the period
April 1, 1993 to December 2, 1993, the period December 3, 1993 to March 31,
1994, and the year ended March 31, 1995, included the following components (in
thousands):
<TABLE>
<CAPTION>
PREDECESSOR
-----------------------
APRIL 1, DECEMBER 3,
1993 TO 1993 TO
DECEMBER 2, MARCH 31,
1993 1993 1994 1995
------- ----------- ----------- -------
<S> <C> <C> <C> <C>
Service cost-benefits earned
during the period............. $ 676 $ 467 $ 288 $ 985
Interest cost on projected
benefit obligation............ 995 739 415 1,283
Actual return on assets......... (1,186) (954) (310) 199
Net amortization and deferral... 356 333 -- (1,283)
------- ----- ----- -------
Net periodic cost............... $ 841 $ 585 $ 393 $ 1,184
======= ===== ===== =======
</TABLE>
The following table sets forth the plans' funded status and amounts
recognized in the Company's balance sheet at March 31, 1994 and 1995 (in
thousands):
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefits........................................ $12,606 $12,194
Nonvested benefits..................................... 772 777
------- -------
Accumulated benefit obligation......................... 13,378 12,971
Effect of future wage increase......................... 4,674 4,022
------- -------
Projected benefit obligation........................... 18,052 16,993
Fair value of plan assets................................ 11,955 12,175
------- -------
Projected benefit obligation in excess of plan assets.... 6,097 4,818
Unrecognized prior service cost.......................... -- --
Unrecognized net gain.................................... -- 1,425
------- -------
Accrued pension cost..................................... $ 6,097 $ 6,243
======= =======
</TABLE>
The current portion of accrued pension cost ($1,137,000 at March 31, 1994
and $1,042,000 at March 31, 1995) is included in accrued payroll and other
compensation cost on the balance sheets. The long-term portion is included in
pension and postretirement obligations.
At March 31, 1994 and 1995, the discount rates used in determining the
actuarial present value of benefit obligations were 7.0% and 8.25%,
respectively. The increase in the discount rate reduced the actuarial present
value of benefit obligations by $2.1 million. The rate of compensation increase
assumed in the determination of the projected benefit obligations ranged from
4.3% to 11.4%. The long-term rate of return on assets was 9% in 1993, 1994, and
1995.
Postretirement Benefits
In addition to the Company's defined benefit pension plan, the Company has
assumed the obligation of Old INDSPEC with respect to two defined benefit
postretirement plans. One plan covers all U.S. salaried employees and the other
plan covers the Petrolia hourly employees. Both plans provide medigap coverage
and life insurance protection. With respect to the salaried program,
postretirement medical costs are contributory,
F-16
<PAGE> 105
INDSPEC HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995
with retiree contributions adjusted annually in accordance with the health care
trend assumption. The hourly plan requires no contribution for basic coverage.
Effective April 1, 1993, Old INDSPEC adopted FASB Statement No. 106,
Employers Accounting for Postretirement Benefits Other Than Pensions. The
cumulative effect of adopting the new rules increased the postretirement benefit
cost of Old INDSPEC for the period April 1, 1993 to December 2, 1993 by $3.7
million and decreased net income by $2.2 million. Postretirement benefit cost
for the year ended March 31, 1993, which was recorded on the cash basis, was
$113,000 and has not been restated.
The following table presents the plans' combined funded status reconciled
with the amount recognized in the Predecessor's and the Company's statement of
operations:
Accumulated postretirement benefit obligation (APBO) at March 31, 1994 and
1995:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Retirees............................................ $2,508,000 $2,496,000
Fully eligible active plan participants............. 1,068,000 1,319,000
Other active plan participants...................... 3,526,000 2,409,000
Unrecognized net gain............................... -- 1,357,000
---------- ----------
Accrued postretirement benefit cost............ $7,102,000 $7,581,000
========== ==========
</TABLE>
Net periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
PREDECESSOR
---------------
PERIOD 4/1/93 PERIOD 12/3/93 YEAR ENDED
THROUGH 12/2/93 THROUGH 3/31/94 MARCH 31, 1995
--------------- --------------- --------------
<S> <C> <C> <C>
Net Periodic Cost
Service cost.............................. $ 85,000 $ 63,000 $177,000
Interest cost............................. 279,000 163,000 490,000
---------- ---------- --------
Net periodic postretirement benefit
cost................................... $ 364,000 $ 226,000 $667,000
Total 1993/94 Expense
Net periodic postretirement benefit
cost................................... $ 364,000 $ 226,000 $667,000
Transition obligation at 4/1/93........... 3,406,000 -- --
One-time purchase accounting charge....... -- 1,460,000 --
---------- ---------- --------
Total expense............................. $3,770,000 $1,686,000 $667,000
========== ========== ========
</TABLE>
Old INDSPEC reflected the cost of $3.7 million (reduced by tax benefit of
$1.5 million) as a one-time charge related to the adoption of FAS 106. In
calculating this expense in April 1993, Old INDSPEC assumed a discount rate of
8.5%. Upon the acquisition, the Company utilized a 7% discount rate and
therefore, increased the liability assumed for postretirement benefits to
reflect the lower rate assumption by $1.5 million. The discount rate for 1995
was increased to 8.25%, reducing the accrued postretirement benefit obligation
by $1.4 million.
The weighted-average annual assumed rate of increase in the per capita cost
of covered benefits (i.e., health care cost trend rate) is 11% for 1995
(unchanged from 1994) and is assumed to decrease gradually to 6% by 2003 and
remain at that level thereafter. The health care cost trend rate assumption has
a significant effect on the amounts reported. For example, increasing the
assumed health care cost trend rates by one percentage point in each year would
increase the accumulated postretirement benefit obligation as of
F-17
<PAGE> 106
INDSPEC HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995
March 31, 1994 by $922,000 and the aggregate of the service and interest cost
components of net periodic postretirement benefit cost for the year ended March
31, 1995 by $107,000.
Supplemental Benefit Plan
At the inception of the Company, it assumed employment agreements with
certain employees which provide for pension benefits otherwise accrued under the
Salaried Employees' Retirement Plan but for the limitations imposed under the
Internal Revenue Code. The present value of the projected benefit obligation of
this unfunded nonqualified plan as of December 2, 1993 was $830,000 and this
amount was an assumed liability of the Company as part of the Transactions.
During the period December 2, 1993 through March 31, 1994, and the year ended
March 31, 1995, the Company recognized $25,000 and $95,000, respectively, of
expense related to this plan.
Employee Stock Ownership Plan
In December 1988, Old INDSPEC established an Employee Stock Ownership Plan
("ESOP") which enables eligible employees (all employees after one year of
service, as defined in the ESOP) to acquire shares of the Company's common
stock. This plan was adopted by Holdings. The cost of the ESOP is borne by the
Company through annual contributions to an Employee Stock Ownership Trust (ESOT)
in amounts determined by the Board of Directors. Shares of stock acquired by the
plan are to be allocated to each employee and held until the employee's
retirement, permanent disability or death. The trustee is entitled to vote all
Company stock held by the ESOT at such time and in any such manner as directed
by the Employee Benefit Committee, except that with respect to required approval
of certain major corporate transactions, each participant is entitled to vote
the shares allocated to his or her account.
On December 16, 1988, Old INDSPEC sold 10,000 shares (fully allocated at
March 31, 1994 and 1995) of its Class A common stock to the ESOT at $100 per
share. The ESOP financed the purchase of stock through a three-year loan with a
bank which was guaranteed by Old INDSPEC and has been fully repaid. The Company
made contributions of $227,000 and $150,000, $0, and $289,000 during the year
ended March 31, 1993, the period April 1, 1993 to December 2, 1993, and for the
period December 3, 1993 to March 31, 1994, and during the year ended March 31,
1995, respectively, to the plan to enable the ESOP to repurchase stock from
retiring employees. The Company's contributions were recognized as employee
benefits expense. Following the distribution of shares to a former employee, the
employee has a "put" option with respect to these distributed shares. To the
extent the ESOP does not utilize its own funds to repurchase these shares, the
Company is required to repurchase the shares at appraised value. The common
stock held by the ESOP is appraised annually as of December by an independent
appraiser and this appraisal amount is used by the Company to determine the
potential repurchase obligation. Effective April 1, 1994, the Company adopted
the provisions of Statement of Position (SOP) 93-6. Previously, the Company
accounted for its ESOP under SOP 76-3. The prospective adoption had no effect on
the financial statements.
Incentive Compensation Plans
The INDSPEC Chemical Corporation Incentive Stock Option Plan ("ISOP") was
established by Old INDSPEC in February 1989. The ISOP was established to
encourage ownership of stock by key employees to provide increased incentive for
such employees to render services and to exert maximum effort for the business
success of the Company.
The ISOP provides for the discretionary granting of Incentive Stock Options
("ISOs") to purchase shares of common stock, at not less than the fair market
value thereof on the date of grant, to select employees of the Company,
including officers. The Compensation Committee may provide that ISOs will vest
F-18
<PAGE> 107
INDSPEC HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995
immediately or in increments over a period of time. During the year ended March
31, 1990, 8,000 ISOs to purchase shares of common stock for $100 per share were
granted (the maximum approved under the plan). The ISOs vest on a pro rata basis
over a three-year period. There were no ISOs granted during the years ended
March 31, 1992 and 1993.
During the period December 3, 1993 to March 31, 1994, Holdings granted
stock options to purchase 5,863 common shares of Holdings at $450 per share, the
estimated fair market value at the date of grant, with 4,285 of the ISOs vesting
ratably over a three-year period beginning December 2, 1993. The balance of the
shares vest ratably over a six-year period beginning December 2, 1993. There
were no options granted during the year ended March 31, 1995.
Profit-Sharing Plan
Old INDSPEC's nonqualified Profit-Sharing Plan covered substantially all
employees, including executive officers. The plan provided for a quarterly
benefit payment based upon a percentage (determined by the Compensation
Committee) of the Company's quarterly and annual earnings before depreciation,
amortization, interest and taxes ("EBDIT") when such earnings exceed certain
minimum levels. An employee's share was based on his or her position in the
Company and salary.
For the year ended March 31, 1993 and for the period April 1, 1993 to
December 2, 1993, and for the period December 3, 1993 to March 31, 1994, the
Company accrued expenses of $546,000, $0, and $431,000, respectively, related to
this plan.
The Company amended the profit-sharing plan in 1995 to provide that on a
quarterly basis the Company will pay a bonus to each employee if the Company's
EBDIT, as defined by the plan, exceeds certain minimum levels. For the year
ended March 31, 1995 each employee received a bonus equaling 12.5% of base pay
before overtime and was eligible for an additional 2% bonus based on attaining
certain attendance and safety goals. The total expense related to the plan for
1995 was $2.4 million.
Savings Plans
The Company sponsors two savings plans (the "Plans") that cover
substantially all employees, including executive officers. Each participant has
the option to defer taxation of a portion of his or her earnings by directing
the Company to contribute a percentage of such earnings to the Plans. The
Company also may make discretionary contributions to the Plans. The Company's
contributions would be allocated to each participant based on his or her pro
rata contributions to the Plans. The Company has made no contributions to the
Plans.
7. INCOME TAXES
Effective April 1, 1993, the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by FASB
Statement No. 109, "Accounting for Income Taxes." As permitted under the new
rules, prior years' financial statements were not restated. The cumulative
effect of adopting Statement 109 as of April 1, 1993 was to increase net income
by $4.4 million. The corresponding asset that was booked relates to federal net
operating loss carryforwards.
F-19
<PAGE> 108
INDSPEC HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial accounting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation............................. $37,660 $33,345
Tax over book amortization............................. 2,470 3,567
Other.................................................. 610 528
-------
Total deferred tax liabilities......................... $40,740 $37,440
Deferred tax assets:
Net operating loss carryforwards....................... 20,116 12,072
Alternative Minimum Tax Credit......................... -- 240
Pension obligation..................................... 3,078 3,166
Uniform Capitalization................................. 452 1,282
OPEB Liability......................................... 2,866 2,978
Interest on high yield obligations..................... 1,330 4,762
Other.................................................. 1,398 1,230
-------
Net deferred tax assets.................................. $29,240 $25,730
Net deferred tax liabilities............................. $11,500 $11,710
=======
</TABLE>
At March 31, 1995, the Company has net operating loss carryforwards of $54
million for federal income tax purposes that expire in years 2004 through 2009.
Significant components of the provision for income taxes attributable to
continuing operations are as follows (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR
-----------------------------
LIABILITY METHOD
-------------------------------------
DEFERRED METHOD APRIL 1, DECEMBER 3,
--------------- 1993 TO 1993 TO
MARCH 31, DECEMBER 2, MARCH 31, MARCH 31,
1993 1993 1994 1995
--------------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Current:
Federal....................... $ -- $ -- $-- $ 240
State......................... -- -- -- --
---- -------- --- -----
Total Current................. -- -- -- 240
Deferred:
Federal....................... 321 3,117 -- (165)
State......................... 57 (496) -- 375
---- -------- --- -----
Total Deferred................ 378 2,621 -- 210
Extraordinary items............. -- (11,428) -- --
---- -------- --- -----
Total......................... $ 378 $ (8,807) $-- $ 450
==== ======== === =====
</TABLE>
F-20
<PAGE> 109
INDSPEC HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995
The provision for income taxes on income before extraordinary items and
cumulative effect of accounting changes is reconciled with the federal statutory
rate as follows (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR
-----------------------------
LIABILITY METHOD
-------------------------------------
DEFERRED METHOD APRIL 1, DECEMBER 3,
--------------- 1993 TO 1993 TO
MARCH 31, DECEMBER 2, MARCH 31, MARCH 31,
1993 1993 1994 1995
--------------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Federal (34%)................... $ 224 $ 2,641 $ 3 $ 1,656
State, net of federal tax
benefit....................... 57 (326) -- 273
Goodwill amortization and other
nondeductible items........... 97 306 -- 365
Adjustment to deferred income
taxes under FAS #109.......... -- -- -- (1,844)
Other......................... -- -- (3) --
---- ------ --- -------
$ 378 $ 2,621 $-- $ 450
==== ====== === =======
</TABLE>
In March 1994, deferred income taxes were recorded based upon temporary
differences known to exist as of that date. Many of the temporary differences
related to asset basis differences arising out of the purchase accounting
related to the acquisition of Old INDSPEC. During the current fiscal year, the
determination of cumulative temporary differences was revised, resulting in a
reduction in deferred income tax liabilities of $1,844,000. This adjustment was
recorded as a decrease to current year deferred tax expense under FASB No. 109.
8. FINANCIAL INFORMATION RELATING TO EXPORT SALES AND MAJOR CUSTOMERS
The Company sells its products in both foreign and domestic markets. During
the year ended March 31, 1993, and for the period April 1, 1993 to December 2,
1993, and for the period December 3, 1993 to March 31, 1994, and for the year
ended March 31, 1995, export sales represented approximately 47%, 44%, 47%, and
44%, respectively, of net sales.
Export sales are concentrated in Europe, Asia, South America, and North
America. These continents account for 57%, 19%, 8%, and 11%, respectively, of
total export sales for the year ended March 31, 1993; 56%, 17%, 9%, and 10%,
respectively, for the period April 1, 1993 to December 2, 1993; 50%, 15%, 8%,
and 12%, respectively, for the period December 3, 1993 to March 31, 1994; and
54%, 22%, 9%, and 11%, respectively, for the year ended March 31, 1995.
Sales to one customer, a manufacturer, represented 22%, 20%, 19%, and 19%
of net sales for the year ended March 31, 1993, and for the period April 1, 1993
to December 2, 1993, and for the period December 3, 1993 to March 31, 1994, and
for the year ended March 31, 1995, respectively. The Company performs periodic
credit evaluations of its customers financial condition and generally does not
require collateral except for certain export sales where customers are required
to provide letters of credit to secure payment.
F-21
<PAGE> 110
INDSPEC HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995
9. COMMITMENTS
The Company leases land, buildings and equipment under various
noncancelable operating leases with original terms ranging from one to five
years. Minimum rental commitments payable in future years under noncancelable
operating leases are as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDING MARCH 31, IN THOUSANDS
------------------------------ ------------
<S> <C>
1996............................ $1,231
1997............................ 655
1998............................ 436
1999............................ 276
2000............................ 4
------
Total................... $2,602
======
</TABLE>
Substantially all of the Company's leases contain renewal options.
Effective December 23, 1991, Old INDSPEC received permission from the State
of Pennsylvania to become self-insured for workers' compensation insurance. To
protect the Company and its employees, the Company purchased an excess liability
policy that limits the Company's compensation losses from any occurrence to
$500,000. Additionally, the Company maintains a separate bank account into which
it deposits at least 25% of the amount it would have paid had it remained
insured in the commercial market. As of March 31, 1995, this account had a
balance of $85,000.
10. ENVIRONMENTAL MATTERS
Under the terms of the Original Acquisition, Beazer and Old INDSPEC had
indemnified each other with respect to certain environmental claims and cleanup
costs which may be incurred in the future and the Company succeeded to the
benefits and obligations of those indemnities. There have been no material
claims brought by Beazer against the Company or brought by the Company against
Beazer pursuant to these indemnification provisions, except that Beazer has
responded with regard to two matters that were known to exist at the time of the
sale: (1) pursuant to a license signed at the time of the sale, Beazer
constructed and is operating a ground water collection system and treatment
facility at the Petrolia plant site, and (2) pursuant to a preparedness and
contingency plan adopted by Koppers prior to the sale, Beazer agreed to pay Old
INDSPEC a total of $850,000, with regard to reimbursement of the Company's
expenses in completing certain physical improvements that were described in the
plan.
In general, Beazer is obligated to indemnify INDSPEC against certain
environmental claims and cleanup costs related to operations prior to the sale,
whether presently known, or discovered within twelve years of the sale. Beazer
PLC, the parent of Beazer, has guaranteed Beazer's performance of its
indemnification obligation. Beazer PLC was subsequently acquired by Hanson
Industries, Ltd. in 1991. To date, no claims have been made against the Company
concerning operations prior to the sale. The Company understands that Beazer is
answering claims involving the disposal of material from the Petrolia plant
prior to the acquisition; however, the Company has not been included in any such
claims.
11. TUSCALOOSA PLANT OPERATIONS
After the close of the quarter ended September 30, 1993, Old INDSPEC made
the decision to restart its idled synthetic sulfite operation at the Tuscaloosa
Plant. Old INDSPEC closed this facility in 1991 due to the start-up of a
competing plant by Solvay Minerals Company (formerly Tenneco Soda Ash Company
("Solvay") in Green River, Wyoming. The principal raw materials for Old INDSPEC
to produce synthetic
F-22
<PAGE> 111
INDSPEC HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995
sodium sulfite are caustic soda and sulfur. In 1991, due to Solvay's raw
material position, Old INDSPEC concluded that Solvay had a significant cost
advantage over Old INDSPEC more than offsetting the additional freight Solvay
would incur to service Old INDSPEC's market in the southeastern United States.
At that time Old INDSPEC entered into an arrangement with Solvay to sell Solvay
a copy of Old INDSPEC's customer list in return for a royalty and to produce
synthetic sodium sulfite on Solvay's behalf until Solvay's plant became
operational. In January 1993, Old INDSPEC made a final determination to
terminate its efforts to find alternative uses for the facility. Consequently,
Old INDSPEC recognized a provision for loss on disposal of $2.3 million in order
to reduce carrying value to $.5 million as of March 31, 1993. Subsequently, Old
INDSPEC was approached by a number of caustic soda producers with very low,
multi-year pricing on caustic soda. Based on these proposals, management of Old
INDSPEC concluded that it could again profitably produce and deliver synthetic
sodium sulfite to customers in the Southeast. Old INDSPEC negotiated agreements
with suppliers that will keep this cost advantage for a minimum of two years.
Old INDSPEC commenced efforts to reopen the Tuscaloosa Plant in October 1993 and
the Company began producing and selling sulfite in March 1994. Due to the
decision to restart the facility, Old INDSPEC reversed $1.0 million of the
aforementioned $2.3 million provision in October 1993 and reclassified the prior
years' segregation of Tuscaloosa activities into operating profit.
12. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of financial instruments:
Cash and cash equivalents: The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.
Short-term and long-term debt: The carrying amounts of the term loan and
the revolving credit facility approximate their fair value. The fair value of
the Company's senior subordinated discount notes is estimated using market value
indications from independent investment banks.
Foreign currency exchange contracts: The fair values of the Company's
foreign currency exchange contracts are estimated based on quoted market prices
of comparable contracts, adjusted through interpolation where necessary for
maturity differences.
The carrying amounts of the Company's financial instruments at March 31,
1995 approximate fair value, with the exception of the Notes and interest rate
swap agreement. The Notes have a book value of $89,446,000 plus accrued interest
of $3.2 million and have an indicated market value of $82,539,000. As of March
31, 1995 the interest rate swap agreement had no book value but had an intrinsic
value of $300,000 if the swap agreement had been canceled according to its terms
on March 31, 1995.
F-23
<PAGE> 112
INDSPEC HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1995
13. EARNINGS PER SHARE
Earnings per share of common stock for the year 1993, the period April 1,
1993 to December 2, 1993, the period December 3, 1993 to March 31, 1994, and the
year ended March 31, 1995 is calculated as follows (in thousands, except share
data):
<TABLE>
<CAPTION>
PREDECESSOR
-----------------------
APRIL 1 DECEMBER 3,
TO 1993 TO
DECEMBER 2, MARCH 31,
1993 1993 1994 1995
------- ----------- ----------- -------
<S> <C> <C> <C> <C>
Income before extraordinary items and cumulative
effect of changes in accounting methods....... $ 281 $ 5,146 $ (6) $ 4,427
Less: Preferred stock dividends paid or
accrued....................................... 2,453 2,340 -- --
Adjustment to reflect warrant valuation......... 921 614 -- --
Accretion of preferred stock discount and
issuance costs................................ 88 56 -- --
------- ------- ------- -------
Income applicable to common stock before
extraordinary items and cumulative effect of
changes in accounting methods................. (3,181) 2,136 (6) 4,427
Extraordinary items............................. 302 (8,470) -- --
Cumulative effect of changes in accounting
methods....................................... -- 2,232 -- --
------- ------- ------- -------
Net income (loss) applicable to common stock.... $(2,879) $(4,102) $ (6) $ 4,427
======= ======= ======= =======
Average number of outstanding shares of common
stock......................................... 87,092 87,092 46,728 46,728
Outstanding stock options....................... -- -- -- 11,833
Outstanding stock warrants...................... -- -- -- 506
Treasury purchases.............................. -- -- -- (3,459)
------- ------- ------- -------
Fully diluted shares outstanding................ 87,092 87,092 46,728 55,608
======= ======= ======= =======
Income (loss) per share of common stock before
extraordinary items and cumulative effect of
accounting changes............................ $(36.52) $ 24.52 $ (.13) $ 79.61
Earnings (loss) per share effect of
extraordinary items........................... 3.46 (97.25) -- --
Earnings per share effect of accounting method
changes....................................... -- 25.63 -- --
------- ------- ------- -------
Income (loss) per share of common stock......... $(33.06) $(47.10) $ (.13) $ 79.61
======= ======= ======= =======
</TABLE>
For the year ended March 31, 1993, the period April 1 to December 2, 1993,
and the period December 3, 1993 to March 31, 1994 the outstanding warrants and
stock options are not considered in calculating the earnings per share results,
as their inclusion would be antidilutive.
F-24
<PAGE> 113
14. INTERIM FINANCIAL STATEMENTS (UNAUDITED)
The statements of operations and statements of cash flows for the three-
and six-month periods ended September 30, 1994 and 1995, and the balance sheet
and statement of common stockholders' equity as of September 30, 1995 reflect
adjustments which are considered necessary by management of the Company for a
fair financial statement presentation of the results for these periods. All such
adjustments were of a normal recurring nature.
In May 1995, the Company exercised its right to acquire the Subordinated
Discount Notes with a face value of $12.9 million held by Lehman (see note 4)
and recognized an after tax extraordinary gain of $342,000.
F-25
<PAGE> 114
ANNEX I
AGREEMENT AND PLAN OF SHARE EXCHANGE
DATED AS OF NOVEMBER 10, 1995
BY AND BETWEEN
OCCIDENTAL PETROLEUM CORPORATION
AND
INDSPEC HOLDING CORPORATION
<PAGE> 115
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I. DEFINITIONS................................................................. I-2
SECTION 1.1. Definitions............................................................. I-2
SECTION 1.2. Dollar References....................................................... I-4
SECTION 1.3. Rounding Convention..................................................... I-4
ARTICLE II. THE MERGER................................................................. I-5
SECTION 2.1. The Merger.............................................................. I-5
SECTION 2.2. Closing of the Merger................................................... I-5
ARTICLE III. THE SHARE EXCHANGE........................................................ I-5
SECTION 3.1. The Buyer's Exchange Offers............................................. I-5
SECTION 3.2. Mechanics............................................................... I-5
SECTION 3.3. Option Loans............................................................ I-5
SECTION 3.4. Prorationing............................................................ I-6
SECTION 3.5. Closing of the Exchange Offers.......................................... I-6
SECTION 3.6. Fractional Shares....................................................... I-6
SECTION 3.7. Adjustment.............................................................. I-6
SECTION 3.8. Company Actions......................................................... I-6
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.............................. I-6
SECTION 4.1. Incorporation; Qualification and Corporate Authority.................... I-6
SECTION 4.2. Subsidiaries............................................................ I-7
SECTION 4.3. Reports and Financial Statements........................................ I-7
SECTION 4.4. Absence of Certain Changes or Events.................................... I-8
SECTION 4.5. Capitalization.......................................................... I-8
SECTION 4.6. Binding Obligation...................................................... I-8
SECTION 4.7. No Defaults or Conflicts................................................ I-8
SECTION 4.8. No Authorizations or Consents Required.................................. I-9
SECTION 4.9. Permits................................................................. I-9
SECTION 4.10. No Actions, Suits or Proceedings........................................ I-9
SECTION 4.11. Documents; Material Contracts........................................... I-9
SECTION 4.12. Properties and Assets................................................... I-10
SECTION 4.13. Intangibles............................................................. I-10
SECTION 4.14. Employee Relations...................................................... I-10
SECTION 4.15. Environmental Compliances............................................... I-11
SECTION 4.16. Taxes................................................................... I-12
SECTION 4.17. Employee Benefits....................................................... I-13
SECTION 4.18. No Other Broker......................................................... I-15
SECTION 4.19. Insurance............................................................... I-15
SECTION 4.20. Compliance with Applicable Law.......................................... I-15
SECTION 4.21. Non-Applicability of Certain Regulations................................ I-15
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF BUYER..................................... I-15
SECTION 5.1. Incorporation; Qualification and Corporate Authority.................... I-15
SECTION 5.2. Capitalization.......................................................... I-15
SECTION 5.3. Binding Obligation...................................................... I-16
SECTION 5.4. No Defaults or Conflicts................................................ I-16
</TABLE>
I-i
<PAGE> 116
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
SECTION 5.5. No Authorization or Consents Required................................... I-16
SECTION 5.6. No Actions, Suits or Proceedings........................................ I-16
SECTION 5.7. Sufficient Funds........................................................ I-16
SECTION 5.8. No Other Broker......................................................... I-16
SECTION 5.9. Reports and Financial Statements........................................ I-16
SECTION 5.10. Purchase for Investment................................................. I-17
ARTICLE VI. COVENANTS.................................................................. I-17
SECTION 6.1. Conduct of Business..................................................... I-17
SECTION 6.2. No Negotiations......................................................... I-17
SECTION 6.3. Expenses................................................................ I-18
SECTION 6.4. Further Assurances...................................................... I-18
SECTION 6.5. Notice of Events........................................................ I-18
SECTION 6.6. Access to Information................................................... I-18
SECTION 6.7. Indemnification and Insurance........................................... I-19
SECTION 6.8. Employees and Employee Benefit Plans.................................... I-19
SECTION 6.9. No Section 338 Election; Certain Transactions Prohibited................ I-21
SECTION 6.10. Registration............................................................ I-21
SECTION 6.11. Merger Agreement........................................................ I-22
SECTION 6.12. Meeting of Stockholders................................................. I-22
SECTION 6.13. Additional Consideration................................................ I-22
SECTION 6.14. Insurance Maintenance................................................... I-22
SECTION 6.15. September 30 Financials................................................. I-22
SECTION 6.16. Additional Information.................................................. I-22
ARTICLE VII. CONDITIONS PRECEDENT TO THE CONSUMMATION OF THE MERGER AND THE
COMMENCEMENT OF THE EXCHANGE OFFERS................................................... I-22
SECTION 7.1. Conditions Precedent of Buyer to Commence the Exchange Offers........... I-22
SECTION 7.2. Conditions Precedent of the Company to Consummate the Merger............ I-24
SECTION 7.3. Mutual Conditions....................................................... I-25
ARTICLE VIII. TERMINATION OF AGREEMENT................................................. I-26
SECTION 8.1. Termination............................................................. I-26
SECTION 8.2. Survival After Termination.............................................. I-26
ARTICLE IX. MISCELLANEOUS.............................................................. I-26
SECTION 9.1. Nonsurvival of Representations and Warranties........................... I-26
SECTION 9.2. Law Governing........................................................... I-26
SECTION 9.3. Binding Effect; Persons Benefiting; No Assignment....................... I-26
SECTION 9.4. Amendments.............................................................. I-27
SECTION 9.5. Interpretation.......................................................... I-27
SECTION 9.6. Counterparts............................................................ I-27
SECTION 9.7. Entire Agreement; Schedules............................................. I-27
SECTION 9.8. Notices................................................................. I-27
SECTION 9.9. Public Announcements.................................................... I-28
</TABLE>
I-ii
<PAGE> 117
AGREEMENT AND PLAN OF SHARE EXCHANGE
AGREEMENT AND PLAN OF SHARE EXCHANGE (the "Agreement"), dated as of
November 10, 1995, by and between OCCIDENTAL PETROLEUM CORPORATION, a Delaware
corporation (the "Buyer"), and INDSPEC Holding Corporation, a Delaware
corporation (together with its successors, the "Company").
WHEREAS, pursuant to the Voting Agreement (the "Voting Agreement"), dated
as of the date hereof, among Castle Harlan Partners II, L.P., a Delaware limited
partnership ("CHPII"), the other individuals party thereto (together with CHPII,
the "Roundtable Group"), Roundtable Corp., a Delaware corporation
("Roundtable"), the other stockholders of the Company named therein and the
Company, each member of the Roundtable Group has agreed to contribute the shares
of common stock, par value $.01 per share of the Company ("Company Common
Stock") set forth on Annex A opposite such member's name to Roundtable, in
exchange for an identical number of shares of Roundtable common stock, par value
$.01 per share ("Roundtable Common Stock");
WHEREAS, the Company and Roundtable have executed and delivered a merger
agreement (the "Merger Agreement") pursuant to which, and subject to the terms
and conditions thereof, Roundtable will be merged (the "Merger") with and into
the Company, with the Company as the surviving corporation (the "Surviving
Corporation");
WHEREAS, pursuant to the Merger, the Surviving Corporation's certificate of
incorporation will be amended to provide, among other things, for the issuance
of Class A Common Stock, par value $.01 per share (the "Class A Common Stock"),
and Class B Common Stock, par value $.01 per share (the "Class B Common Stock",
and, together with the Class A Common Stock, the "New Company Common Stock");
WHEREAS, pursuant to the Merger, each share of Company Common Stock held by
stockholders of the Company other than Roundtable will be converted into one
share of Class A Common Stock, each share of Roundtable Common Stock will be
converted into one share of Class B Common Stock, and all outstanding shares of
Company Common Stock held by Roundtable will be cancelled;
WHEREAS, subject to the terms and conditions of this Agreement, the boards
of directors of the Buyer and the Company have approved the exchange (the
"Exchange") of the shares of the New Company Common Stock to be outstanding upon
consummation of the Merger for shares of common stock, par value $.20 per share,
of the Buyer ("Buyer Common Stock") pursuant to exchange offers (the "Exchange
Offers") in the amounts and on the terms set forth in this Agreement;
WHEREAS, the Voting Agreement provides, among other things, that (i)
members of the Roundtable Group will vote their shares of Roundtable Common
Stock in favor of the Merger, (ii) Roundtable will vote its shares of Company
Common Stock in favor of the Merger, (iii) the other stockholders named therein
will vote their shares of Company Common Stock in favor of the Merger, (iv) the
members of the Roundtable Group will tender their shares of Class B Common Stock
in the Exchange Offers, and (v) the other stockholders of the Company named
therein will tender their shares of Class A Common Stock in the Exchange Offers;
and
WHEREAS, in furtherance of the consummation of the Exchange and the
transactions contemplated herein, the parties hereto desire to enter into this
Agreement;
NOW, THEREFORE, in consideration of and premised upon the various
representations, warranties, covenants and other agreements and undertakings of
Buyer and the Company contained in this Agreement,
<PAGE> 118
and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the Buyer and the Company agree as follows:
ARTICLE I.
DEFINITIONS
SECTION 1.1. Definitions. (a) For all purposes in this Agreement, the
following terms shall have the respective meanings set forth in this Section 1.1
(such definitions to be equally applicable to both the singular and plural forms
of the terms herein defined):
"Audit" shall mean any audit, assessment of Taxes, other examination
by any Tax Authority, proceeding or appeal of such proceeding relating to
Taxes.
"Buyer Common Stock Value" means the average of the last reported
sales price (regular way) of Buyer Common Stock on the New York Stock
Exchange on each of the twenty (20) consecutive trading days ending on the
fifth trading day prior to the Closing Date.
"Change of Control" shall have the meaning set forth in the Indenture.
"Closing" means the consummation of the Exchange.
"Closing Date" means the date on which the Closing occurs.
"Conversion Date" has the meaning given to such term in the
Certificate of Incorporation of the Surviving Corporation attached as
Exhibit A to the Merger Agreement as described in Section 6.8 of this
Agreement.
"Credit Agreement" means the credit agreement among Specialty
Acquisition Holding, Inc., INDSPEC Technologies, Ltd., Specialty
Acquisition Sub., Inc., the Banks party thereto from time to time and
Bankers Trust Company, as agent, dated as of December 2, 1993.
"Employee" means each employee employed by the Company or its
Subsidiaries on the Conversion Date who is (i) performing duties and
responsibilities for the Company or its Subsidiaries; (ii) on temporary
leave of absence from the Company or its Subsidiaries; or (iii) on short
term disability or sick leave from the Company or its Subsidiaries.
"Environmental Claim" means any notice (written or oral) by any person
or entity (including, without limitation, citizen complaints) alleging,
asserting or stating potential liability or responsibility (including,
without limitation, relating to cleanup costs or other costs of corrective
action, investigative costs, governmental response costs, natural resources
damages, nuisance, penalties or contractual rights or obligations) arising
out of, based on or resulting from (i) the presence or release into the
environment of any Hazardous Material at any location, owned or operated by
the Company or the Subsidiaries or at any facility which received Hazardous
Material generated by the Company or the Subsidiary or (ii) any violation
or alleged violation of any applicable Environmental Law.
"Environmental Contracts" means any contracts, agreements or
correspondence with private parties allocating or discussing the allocation
of liability for environmental conditions at properties presently or
formerly owned or operated by the Company or any of its subsidiaries or
predecessors in interest or at any affiliate facility that may have
received Hazardous Material generated by the Company, any of its
subsidiaries or predecessors in interest.
"Environmental Indemnification Rights and Obligations" means all of
the rights, obligations and claims of INDSPEC Chemical Corporation or
Beazer East, Inc. under Article X of the Asset Purchase Agreement by and
between ISC Acquisition Company and Koppers Company, Inc., dated as of
December 16, 1988 (the "December 16, 1988 Agreement").
"Environmental Law" means any federal, state or local statute,
ordinance, rule, regulation, order or common-law doctrine, provisions and
conditions of Environmental Permits, orders and decrees establishing
standards of conduct for protection of human health and the environment,
including, but not limited to (i) releases of Hazardous Materials into the
environment, (ii) exposure of persons to Hazardous Materials, or (iii)
regulation of the manufacture, use or introduction into commerce of
chemical
I-2
<PAGE> 119
substances and materials, including, without limitation, their manufacture,
formulation, labeling, distribution, transportation, handling, storage and
disposal.
"Exchange Consideration" means $131 million.
"Exchange Consideration Per Share" means the number of shares of Buyer
Common Stock determined by (i) dividing the Exchange Consideration by the
sum of (a) the number of shares of New Company Common Stock and (b) the
number of shares of New Company Common Stock subject to issuance upon the
exercise of the Warrant and all vested and unvested Options, in each case,
to the extent outstanding as of the Closing Date, and (ii) dividing the
result obtained in clause (i) by the Buyer Common Stock Value.
"Former Employees" means former employees of the Company and its
Subsidiaries to whom the Company or the Subsidiaries is providing, or has a
future obligation to provide, benefits under the Plans.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government, including the SEC or any other government
authority, agency, department, board, commission or instrumentality of the
United States, any foreign government, any State of the United States or
any political subdivision thereof, and any court, tribunal or arbitrator(s)
of competent jurisdiction, and any governmental or non-governmental
self-regulatory organization, agency or authority.
"Hazardous Materials" means (a) any element, compound, or chemical
that is defined, listed or otherwise classified as a contaminant,
pollutant, toxic pollutant, toxic or hazardous substance, extremely
hazardous substance or chemical, hazardous waste, special waste, or solid
waste under Environmental Laws; (b) petroleum, petroleum-based or
petroleum-derived products; (c) polychlorinated biphenyls; and (d) any
substance exhibiting a hazardous waste characteristic including but not
limited to corrosivity, ignitability, toxicity or reactivity as well as any
radioactive or explosive materials.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder.
"Indenture" means the indenture between INDSPEC Chemical Corporation
and United States Trust Company of New York, as Trustee, dated as of
December 2, 1993, with respect to 11 1/2% Series B Senior Subordinated
Discount Notes due 2003.
"Knowledge" means, in the case of a corporation or its subsidiaries,
the actual knowledge of any vice president or more senior officer of such
corporation and its subsidiaries and the actual knowledge of such employees
of such corporation and its subsidiaries as would reasonably be expected to
have knowledge of the relevant subject matter.
"Material Plant Loss" means any damage, destruction or other similar
unplanned event that results in the cessation of all or substantially all
of the production at INDSPEC Chemical Corporation's resorcinol production
facility in Petrolia, Pennsylvania (the "Plant") for a period that exceeds,
or is reasonably likely to exceed, thirty (30) consecutive days, including
an unplanned event which occurs during a planned outage or maintenance, but
taking into account for these purposes only the period exceeding the
planned period.
"Person" means any natural person, corporation, trust, partnership,
limited liability corporation, or other judicial entity.
"Taxes" means all federal, state, local and foreign taxes, and other
governmental assessments of a similar nature (whether imposed directly or
through withholding), including any interest, additions to tax, or
penalties applicable thereto.
"Tax Authority" means the Internal Revenue Service and any other
domestic or foreign governmental authority responsible for the
administration of any Taxes.
"Tax Returns" means all Federal, state, local and foreign tax returns,
declarations, statements, reports, schedules, forms and information returns
(including any amendments thereto) relating to Taxes.
I-3
<PAGE> 120
(b) The following terms shall have the meaning specified in the indicated
section of this Agreement:
<TABLE>
<CAPTION>
TERM SECTION
- ---- -------
<S> <C>
ACM............................ Section 4.15
Agreement...................... Recitals
Annual Report.................. Section 4.17
Buyer.......................... Recitals
Buyer Common Stock............. Recitals
Buyer SEC Documents............ Section 5.9
CHPII.......................... Recitals
Castle Harlan Management
Agreement.................... Section 7.1
Class A Common Stock........... Recitals
Class B Common Stock........... Recitals
Class A Subject Shares......... Section 3.1
Class B Subject Shares......... Section 3.1
Code........................... Section 4.17
Commencement Date.............. Section 3.1
Company........................ Recitals
Company Common Stock........... Recitals
Company Permits................ Section 4.20
Confidentiality Agreement...... Section 6.6
December 16, 1988 Agreement.... Section 1.1
DGCL........................... Section 2.1
D&O Insurance.................. Section 6.7
Effective Date................. Section 2.1
Enabling Agreement............. Section 6.4
Environmental Permits.......... Section 4.15
Environmental Studies.......... Section 4.15
ERISA.......................... Section 4.17
ERISA Affiliate................ Section 4.17
ERISA Plans.................... Section 4.17
Exchange....................... Recitals
Exchange Act................... Section 3.1
Exchange Consideration Per
Warrant...................... Section 3.2
Exchange Offers................ Recitals
Exchange Offer Registration
Statement.................... Section 6.10
Financial Statements........... Section 4.3
GAAP........................... Section 4.3
<CAPTION>
TERM SECTION
- ---- -------
<S> <C>
Material Adverse Effect........ Section 4.1
Maximum Premium................ Section 6.7
Merger......................... Recitals
Merger Agreement............... Recitals
New Company Common Stock....... Recitals
Offers to Exchange............. Section 3.1
Options........................ Section 4.5
PBGC........................... Section 4.17
Pension Plan................... Section 4.17
Permits........................ Section 4.9
Plans.......................... Section 4.17
Plant.......................... Section 1.1
Prospectuses................... Section 6.10
Proxy Statement................ Section 6.10
Redemption Registration
Statement.................... Section 6.10
Registration Statements........ Section 6.10
Retained Options............... Section 6.13
Retained Securities............ Section 6.13
Retained Stock................. Section 6.13
Rights......................... Section 4.4
Roundtable Group............... Recitals
Roundtable..................... Recitals
Roundtable Common Stock........ Recitals
SEC............................ Section 4.3
SEC Documents.................. Section 4.3
September 30 Financials........ Section 6.3
SPD............................ Section 4.17
Securities Act................. Section 5.10
Stockholders Approval.......... Section 3.8
Stockholders Meeting........... Section 6.12
Subject Shares................. Section 3.1
Subsidiary..................... Section 4.2
Surviving Corporation.......... Recitals
Valuation Period............... Section 3.7
Voting Agreement............... Recitals
Warrant........................ Section 4.5
Welfare Plan................... Section 4.17
</TABLE>
SECTION 1.2. Dollar References. All references herein to dollars or "$"
shall be to United States dollars.
SECTION 1.3. Rounding Convention. Unless otherwise specified in this
Agreement, in any instance in which this Agreement requires that a mathematical
calculation be performed, or makes reference to a fraction, the result obtained
after performing such calculation, and any such fraction, shall be expressed as
a decimal and rounded to the nearest 1/100th with .5/100 rounded upward to
1/100.
I-4
<PAGE> 121
ARTICLE II.
THE MERGER
SECTION 2.1. The Merger. Upon the terms and subject to the conditions of
the Merger Agreement, dated as of the date hereof, by and among Roundtable and
the Company and in accordance with the Delaware General Corporation Law (the
"DGCL"), Roundtable shall be merged with and into the Company on the second
business day (the "Effective Date") after the satisfaction or waiver of the
conditions set forth in Article VII hereof. Following the Merger, the Company
shall continue as the Surviving Corporation and the separate corporate existence
of Roundtable shall cease.
SECTION 2.2. Closing of the Merger. The consummation of the Merger shall
take place at the offices of Eckert, Seamans, Cherin & Mellott, 600 Grant
Street, Pittsburgh, Pennsylvania 15219 at 10:00 a.m. Pittsburgh time, on the
Effective Date, or at such other time and place as the Buyer and the Company
mutually agree upon in writing.
ARTICLE III.
THE SHARE EXCHANGE
SECTION 3.1. The Buyer's Exchange Offers. (a) No later than one business
day following the Effective Date, the Buyer shall commence (the date of
commencement being the "Commencement Date") the Exchange Offers, including
mailing the offers to exchange relating thereto (the "Offers to Exchange"),
subject to the terms and conditions set forth in this Agreement. The Offers to
Exchange will provide for the Buyer to offer to exchange the Exchange
Consideration Per Share, for (i) each of the outstanding shares of Class B
Common Stock (the "Class B Subject Shares") and (ii) up to 8,504 shares of Class
A Common Stock that are outstanding or subject to issuance upon exercise of
vested Options or the Warrant less 506 shares if the Warrant is converted into a
warrant to purchase Class B Common Stock (the "Class A Subject Shares" and,
together with the "Class B Subject Shares," the "Subject Shares").
(b) The obligations of the Buyer to commence the Exchange Offers shall be
subject to the satisfaction or waiver of conditions set forth in Sections 7.1
and 7.3 hereof. Notwithstanding any other provision hereof, the Buyer shall
conduct the Exchange Offers in accordance with all applicable laws, including,
without limitation, Section 14(e) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the rules and regulations thereunder. The
Buyer may not extend the Exchange Offers beyond twenty (20) business days from
the Commencement Date. The Exchange Offers shall not be amended with respect to
any provision thereof set forth in this Agreement or Annex B without the prior
written consent of the Company, except that the Buyer may in its sole discretion
waive any of the conditions to the Exchange Offers.
SECTION 3.2. Mechanics.
(a) The Exchange Offers will provide that shares of Class A Common Stock
may be validly tendered by delivery of certificates or by delivery of a notice
of guaranteed delivery executed by the Company indicating that (i) the tendering
party is entitled to receive shares of Class A Common Stock upon exercise of a
vested Option, (ii) such Option has been validly exercised subject only to the
condition that the Buyer accept the shares issuable thereunder in the Exchange
Offers and (iii) the tendering party has directed the Company to deliver such
"accepted" shares directly to the Buyer upon notice of acceptance from the
Buyer.
(b) The letter of transmittal used in the Exchange Offers will permit the
tendering party to indicate the priority of acceptance of the shares it has
tendered (among certificated shares and shares issuable upon exercise of each
vested Option) in the event of prorationing.
SECTION 3.3. Option Loans. The Company, to the extent that it is permitted
to do so pursuant to the terms of the Indenture and the Credit Agreement, may
provide to each holder of vested Options for which the shares issuable upon
exercise thereof are accepted by the Buyer in the Exchange Offers, as a loan,
the amount of the exercise price necessary to exercise such vested Options. The
Company's loan to each such holder shall be evidenced by a promissory note which
provides for a thirty-day loan at a per annum interest rate equal to
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the lowest rate under applicable Federal tax law necessary to avoid accrual of
imputed interest income thereon. If the Company determines not to make the loans
contemplated by Section 3.3, the Company may amend the relevant stock option
plans to permit the cashless exercise (including reload provisions) of the
Options on terms mutually agreeable to the Company and the Buyer.
SECTION 3.4. Prorationing. If a number of shares of Class A Common Stock
greater than the number of Class A Subject Shares is validly tendered in the
Exchange Offers, the Buyer shall accept such shares on a pro rata basis based on
the number of shares validly tendered by each stockholder.
SECTION 3.5. Closing of the Exchange Offers. The obligations of the Buyer
to accept for exchange any Subject Shares pursuant to the Exchange Offers and to
deliver the Exchange Consideration Per Share shall be subject only to the
conditions set forth in Annex B hereto being satisfied, and the Buyer agrees to
deliver such consideration promptly following expiration of the Exchange Offers.
SECTION 3.6. Fractional Shares. No fractional share of Buyer Common Stock
shall be issued, and in lieu thereof, a cash payment shall be made pursuant to
this Section. On the Closing Date, the Buyer shall calculate the cash amount
relating to each fractional share of Buyer Common Stock to which a holder of any
of the foregoing instruments would be entitled by multiplying such fraction by
the Buyer Common Stock Value and the Buyer shall pay such amounts to such
holders of Class A Common Stock and Class B Common Stock, subject to and in
accordance with the terms hereof.
SECTION 3.7. Adjustment. If, during the twenty trading day period on which
the Buyer Common Stock Value is based (the "Valuation Period"), there shall
occur an ex-dividend date with respect to any dividend, or a record date with
respect to any subdivision, reclassification, combination or other
recapitalization affecting the Buyer Common Stock, then the Buyer Common Stock
Value shall be adjusted appropriately in a manner to be determined by the Buyer
and consented to by the Company (which consent shall not unreasonably be
withheld).
SECTION 3.8. Company Actions. The Company hereby consents to the Exchange
and represents that its Board of Directors (at a meeting duly called and held)
has (a) duly approved each of the Exchange and the Merger and determined that
the Exchange and the Merger are fair to the Company's stockholders, and (b)
adopted resolutions recommending approval of the Merger by the stockholders of
the Company ("Stockholders Approval"). The Company will, prior to the
commencement of the Exchange Offers, promptly furnish Buyer with then current
mailing labels containing the names and addresses of the record holders of the
Subject Shares, the Options, and the Warrant, and shall furnish the Buyer with
such additional information, and other assistance as the Buyer may reasonably
request for the purpose of communicating the Exchange Offers to the holders of
the Subject Shares, the Options and the Warrant. Except for such steps as are
necessary to disseminate the Offers to Exchange, the Buyer shall (i) hold in
confidence the information contained in any of such labels and lists and the
additional information referred to in the preceding sentence, (ii) use such
information only in connection with the Exchange Offers, and (iii) if this
Agreement is terminated, upon request of the Company, deliver to the Company or
destroy all such written information and any copies or extracts thereof then in
its possession or under its control.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Buyer that:
SECTION 4.1. Incorporation; Qualification and Corporate Authority. The
Company has been duly incorporated and is validly existing and in good standing
under the laws of the State of Delaware with all requisite power and authority
to conduct its business as presently conducted and to enter into this Agreement
and perform its obligations hereunder. The Company is duly qualified to transact
business as a foreign corporation and is in good standing in each other
jurisdiction in which it owns or leases property of a nature, or transacts
business of a type, that would make such qualification necessary, except to the
extent that the failure
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to so qualify or be in good standing could not, singly or in the aggregate,
reasonably be expected to have a material adverse effect on the assets,
business, condition (financial or otherwise) or results of operations of the
Company and its Subsidiaries considered as one enterprise (a "Material Adverse
Effect").
SECTION 4.2. Subsidiaries. The Company's only subsidiaries (each a
"Subsidiary" and, collectively, the "Subsidiaries") are listed in Schedule 4.2.
Each Subsidiary has been duly organized and is validly existing and in good
standing under the laws of the jurisdiction of its organization with all
requisite power and authority to conduct its business as presently conducted.
Except for the Subsidiaries and except as set forth in Schedule 4.2, neither the
Company nor any of the Subsidiaries owns, directly or indirectly, any capital
stock of or other equity interest in, any other Person. Each Subsidiary is duly
qualified to transact business as a foreign entity and is in good standing in
each other jurisdiction in which it owns or leases property of a nature, or
transacts business of a type, that would make such qualification necessary,
except to the extent that the failure to so qualify or be in good standing could
not, singly or in the aggregate, reasonably be expected to have a Material
Adverse Effect. Except as set forth in Schedule 4.2, all of the outstanding
shares of capital stock of (or other equity interest in) each Subsidiary have
been duly authorized and validly issued and are fully paid and non-assessable
and are owned by the Company, directly or through one or more Subsidiaries, free
and clear of any pledge, lien, security interest, charge, claim, equity or
encumbrance of any kind.
SECTION 4.3. Reports and Financial Statements. (a) The Company has
previously furnished the Buyer with true and complete copies of: (i) Annual
Reports on Form 10-K for the years ended March 31, 1995, 1994 and 1993 filed by
INDSPEC Chemical Corporation with the Securities and Exchange Commission (the
"SEC"), (ii) the Quarterly Report on Form 10-Q for the three months ended June
30, 1995 filed by INDSPEC Chemical Corporation, and (iii) all other reports
filed by INDSPEC Chemical Corporation with the SEC from December 2, 1993 through
the date hereof. As of their respective dates, such reports and statements (the
"SEC Documents") complied in all material respects with the requirements of the
Exchange Act and the rules and regulations of the SEC promulgated thereunder
applicable to such SEC Documents, and none of the SEC Documents, as of their
respective dates, contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
(b) The financial statements of INDSPEC Chemical Corporation included in
the SEC Documents, as of their respective dates, comply as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, were prepared in
accordance with generally accepted accounting principles ("GAAP"), applied on a
basis consistent with prior periods during the periods involved (except as may
be indicated in the notes thereto), and present fairly in all material respects
the financial position as of the dates thereof and the results of operations and
cash flows for the periods then ended (subject, in the case of unaudited interim
statements, to normal year-end audit adjustments in accordance with GAAP that
are not material in amount or effect, and the absence or condensation of certain
notes thereto permitted by GAAP in respect of interim financial statements).
(c) The Company has previously furnished the Buyer with (i) the audited
consolidated financial statements of the Company and its Subsidiaries for the
fiscal years ended March 31, 1994 and 1995, and (ii) the unaudited consolidated
financial statements of the Company and its Subsidiaries for the six-month
period ended September 30, 1995 (collectively the "Financial Statements"). The
Financial Statements have been prepared in accordance with GAAP applied on a
basis consistent with prior periods during the periods involved (except as may
be indicated in the notes thereto), and present fairly the financial position as
of the dates thereof and the results of operations and cash flows for the
periods then ended (subject, in the case of unaudited interim statements, to
normal year-end audit adjustments in accordance with GAAP that are not material
in amount or effects and the absence or condensation of notes thereto required
by GAAP in respect of interim financial statements).
(d) Except as set forth on Schedule 4.3(d) and other than the obligations
contemplated by this Agreement, neither the Company nor any of its Subsidiaries
has any liabilities of any kind or nature, whether absolute, contingent or
accrued, and whether due or to become due, except (i) those reflected or
disclosed in the Financial Statements, (ii) those arising after September 30,
1995 in the ordinary course of business,
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consistent with past practice and in an amount that could not reasonably be
expected to exceed $100,000, (iii) loss contingencies that are remote and (iv)
performance obligations arising under executory contracts.
SECTION 4.4. Absence of Certain Changes or Events. Except as disclosed in
the SEC Documents and as set forth in Schedule 4.4, since June 30, 1995, the
Company and its Subsidiaries have conducted their respective businesses only in
the ordinary course in all material respects, and there has not been: (i) any
change which has had or could, singly or in the aggregate, reasonably be
expected to have a Material Adverse Effect; (ii) any declaration, setting aside
or payment of any dividend or other distribution (whether in cash, stock or
property) with respect to any of the outstanding capital stock of the Company or
of any of its Subsidiaries that is not, directly or indirectly, wholly owned by
the Company or, other than as required by the agreements or Plans identified in
Schedule 4.4, any direct or indirect redemption, purchase or other acquisition
of any shares of such capital stock; (iii) any split, combination or
reclassification of any of the outstanding capital stock of the Company or any
issuance or the authorization of any issuance of any other securities in respect
of, in lieu of or in substitution for shares of the outstanding capital stock of
the Company other than by reason of any exercise of Options granted and existing
as disclosed on Schedule 4.5; (iv) any issuance or sale of capital stock by the
Company or any of its Subsidiaries or any authorization for such action or any
issuance or grant of any options, warrants, agreements, conversion or exchange
rights, preemptive rights or other rights to subscribe for, purchase or
otherwise acquire any capital stock of, or other equity interest in, the Company
or any of its Subsidiaries (individually and collectively, "Rights"); (v) any
Material Plant Loss; (vi) any event that would require the approval of the Board
of Directors of the Surviving Corporation under the provisions of its By-Laws in
the form attached to the Merger Agreement; or (vii) any change in accounting
methods, principles or practices by the Company or any of its Subsidiaries
materially affecting their respective assets, liabilities or business, except
insofar as may have been required by a change in GAAP.
SECTION 4.5. Capitalization. (a) Schedule 4.5 sets forth the authorized,
outstanding and treasury capital stock of the Company, (i) as of the date hereof
and (ii) immediately prior to the Closing Date after giving effect to the
Merger, assuming that none of the Options or the Warrant are exercised on or
prior to that date. Schedule 4.5 sets forth the outstanding options to purchase
Company Common Stock (the "Options"), including the vesting dates and exercise
prices thereof and the outstanding warrant to purchase Company Common Stock (the
"Warrant") including the expiration date and exercise price thereof. Except as
set forth on Schedule 4.5, no shares of capital stock or other equity securities
of the Company have been issued and are outstanding or are reserved for
issuance. Except as set forth in Schedule 4.5, at the date hereof there are, and
immediately prior to the Closing there will be, no (i) Rights or (ii)
restrictions on the voting or transfer of such shares of capital stock or other
equity interests.
(b) The outstanding shares of Company Common Stock have been duly
authorized and validly issued and are fully paid, nonassessable and free of
preemptive and similar rights.
SECTION 4.6. Binding Obligation. The execution and delivery of this
Agreement and the performance by the Company of its obligations hereunder have
been duly authorized by all necessary corporate action on the part of the
Company (subject to Stockholder Approval) and this Agreement has been duly
executed and delivered by the Company. Assuming this Agreement constitutes a
valid and binding obligation of the Buyer, this Agreement constitutes the legal,
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except to the extent that the enforceability thereof
may be limited by: (i) applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or similar laws from time to time in effect affecting
generally the enforcement of creditors' rights and remedies; and (ii) general
principles of equity, including, without limitation, principles of
reasonableness, good faith and fair dealing (regardless of whether enforcement
is sought in equity or at law).
SECTION 4.7. No Defaults or Conflicts. The execution and delivery of this
Agreement by the Company and performance by the Company of its obligations
hereunder (i) do not and, as of the Closing will not, after notice or lapse of
time or both, result in any violation of the charter, by-laws or other
organizational document of the Company or any Subsidiary; and (ii) do not and,
as of the Closing, will not (x) conflict with, or result in a breach of any of
the terms or provisions of, result in the modification or cancellation of, or
give rise to any right of termination, acceleration, prepayment or redemption in
respect of or constitute a default under:
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(A) (except for such conflicts, breaches or defaults that could not, singly or
in the aggregate, reasonably be expected to have a Material Adverse Effect and
except as set forth in Section 3.14 of the Indenture), any indenture, mortgage
or loan agreement or any other agreement or instrument to which the Company or
any Subsidiary is a party or by which they may be bound or to which any of their
respective properties may be subject, assuming that the condition set forth in
Section 7.3.(g) will have been satisfied on or before the Closing Date; or (B)
any existing applicable law, rule, regulation, judgment, order or decree of any
Governmental Authority having jurisdiction over the Company or any Subsidiary or
any of their respective properties, other than such consents, approvals,
authorizations, filings or notices as are set forth in Schedule 4.7 and
immaterial filings, authorizations, consents or approvals; or (y) result in the
creation or imposition of any lien, charge or encumbrance upon any property or
assets of the Company or any Subsidiary (except for such liens, charges or
encumbrances that could not, singly, or in the aggregate, reasonably be expected
to have Material Adverse Effect).
SECTION 4.8. No Authorizations or Consents Required. Other than as listed
in Schedule 4.8, no consent, authorization or approval or other action by, and
no notice to or filing with, any Governmental Authority or other person (except
for immaterial consents, authorizations, approvals, actions, notices or filings)
will be required to be obtained or made by the Company or any of its
Subsidiaries or, to the Knowledge of the Company, any of its stockholders in
connection with the due execution and delivery by the Company of this Agreement
and the consummation by the Company or any of its stockholders of the
transactions contemplated hereby.
SECTION 4.9. Permits. Except for those Permits identified in Schedule 4.9,
which have been timely applied for but not yet obtained, each of the Company and
the Subsidiaries has in full force and effect all Federal, state, local and
foreign governmental approvals, consents, authorizations, certificates, filings,
franchises, licenses, notices, permits and rights (collectively, "Permits")
necessary for it and them to conduct its and their respective businesses as
presently conducted, and there has not occurred any default under any Permit,
except for those that could not, singly or in the aggregate, reasonably be
expected to have a Material Adverse Effect. There are no actions, suits or
proceedings pending or, to the Knowledge of the Company, threatened relating to
the suspension, revocation or modification of any Permit, except for such that
could not, singly or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
SECTION 4.10. No Actions, Suits or Proceedings. Except as set forth in
Schedule 4.10, there is no action, suit or proceeding pending, or to the
Knowledge of the Company, threatened against the Company or any Subsidiary that
(i) could, singly or in the aggregate, reasonably be expected to have a Material
Adverse Effect or (ii) questions the validity, legality or enforceability of
this Agreement, the Merger Agreement, the Voting Agreement or the transactions
contemplated hereby or thereby or seeks to prevent the consummation of the
transactions contemplated hereby or thereby, including (without limitation) the
Merger and the Exchange.
SECTION 4.11. Documents; Material Contracts. As of the date hereof, all
documents described in or filed as an exhibit to any SEC Document have been
provided or made available to the Buyer by the Company.
Schedule 4.11 sets forth all of the following contracts to which the
Company or any of its Subsidiaries is a party or by or to which any of their
properties or business are bound or subject and which have not expired or have
no further effect by their terms: (i) contracts with any current or former
officer, director, employee, security holder, option holder, warrant holder,
consultant or agent; (ii) material contracts for the purchase, lease or other
acquisition of materials, supplies, equipment, merchandise, services, real
property or any other material asset; (iii) material patent, trademark, service
mark, trade name, copyright or franchise licenses, royalty agreements or similar
contracts; (iv) material distributorship, representative, management, marketing,
sales agency, printing or advertising contracts; (v) contracts for the sale,
lease or other transfer (or the grant to any person of any preferential rights
to purchase, lease or otherwise acquire) any material properties; (vi) joint
venture contracts, partnership agreements or similar contracts; (vii) contracts
under which the Company or any of its Subsidiaries has directly or indirectly
guaranteed the obligations of any Person; (viii) contracts under which the
Company or any of its Subsidiaries has agreed to directly or indirectly
indemnify any person or to directly or indirectly share tax liability with any
person; (ix) contracts directly or indirectly limiting the
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freedom of the Company or any of its Subsidiaries to engage in any line of
business or in any geographic area; (x) contracts directly or indirectly
relating to the acquisition by the Company or any of its Subsidiaries of any
operating business or the capital stock of, or other equity interest in, any
person; (xi) contracts relating to indebtedness for money borrowed (other than
contracts that, in the aggregate, relate to indebtedness in the principal amount
of $100,000 or less); and (xii) except for contracts that do not obligate the
Company to make aggregate payments thereunder in excess of $100,000 or relate to
accounts payable arising in the ordinary course of business on terms consistent
with past practice, each other contract, whether or not made in the ordinary
course of business, that is not included under the foregoing clauses and is
otherwise material to the business of the Company or any of its Subsidiaries.
The Company has made available to the Buyer a correct and complete copy of each
of the foregoing contracts. All such contracts are in full force and effect
(unless otherwise provided therein), the Company and its Subsidiaries have paid
in full or accrued all amounts due thereunder and have satisfied in full or
provided for all of their liabilities and obligations thereunder in accordance
with GAAP and past practices, except to the extent that the failure to so pay or
accrue could not reasonably be expected to result in additional liabilities or
obligations to pay an amount in the aggregate in excess of $100,000.
SECTION 4.12. Properties and Assets. (a) Schedule 4.12 sets forth a true
and complete list of all real property and interests therein owned or held by
the Company and its Subsidiaries. Except as provided in Schedule 4.12, each of
the Company and its Subsidiaries has good and marketable title to all properties
and assets owned by it, free and clear of all pledges, liens, security
interests, charges, claims or encumbrances, except (i) such as could not
reasonably be expected to have a Material Adverse Effect, and (ii) for real
estate taxes not yet due and payable.
(b) Except as provided in Schedule 4.12, each lease and sublease to which
the Company or any of its Subsidiaries is a party and which is used in the
business of the Company and its Subsidiaries is in full force and effect, and
neither the Company nor any of its Subsidiaries has any notice of any claim of
any sort that has been asserted by anyone adverse to the rights of the Company
or any Subsidiary under any such lease or sublease, except for such claims that
could not reasonably be expected to have a Material Adverse Effect.
(c) All improvements on real property owned or leased by the Company or any
of its Subsidiaries, and the operations conducted thereat, conform in all
material respects, to all applicable land use, zoning or similar laws.
(d) Except as set forth on Schedule 4.12, for the period beginning on the
date hereof and ending on June 30, 1996, the Company and INDSPEC Chemical
Corporation have no planned or scheduled outage or maintenance of the Plant that
will or is reasonably likely to result in cessation of all or substantially all
of the production at the Plant.
SECTION 4.13. Intangibles. Each of the Company and the Subsidiaries owns or
possesses adequate patents, patent licenses, trademarks, service marks and trade
names necessary to the production or sale of resorcinol or that otherwise could
reasonably be expected to be material to the Company and its Subsidiaries, taken
as a whole. Neither the Company nor any Subsidiary has received any notice of
infringement of, or conflict with asserted rights of others with respect to, any
patents, patent licenses, trademarks, service marks or trade names that could
reasonably be expected, singly or in the aggregate, to have a Material Adverse
Effect or that relate to the production or sale of resorcinol.
SECTION 4.14. Employee Relations.
(a) The Company and its Subsidiaries have approximately 378 employees.
Except as disclosed on Schedule 4.14 there is no unfair labor practice charge or
complaint pending or threatened against the Company, any of its Subsidiaries, or
any Person for whom any of them is or may be responsible by law or contract,
before the National Labor Relations Board or any corresponding state, local or
foreign agency, and no grievance or arbitration proceeding arising out of or
under any collective bargaining agreement is so pending or threatened. Except as
disclosed on Schedule 4.14, there is no strike, labor dispute, slowdown or
stoppage pending or threatened against the Company, any of its Subsidiaries, or
any Person for whom any of them is or may be responsible by law or contract.
Except as disclosed on Schedule 4.14, there is no union
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representation claim or question existing with respect to the employees of the
Company, any of its Subsidiaries or any Person for whom any of them is or may be
responsible by law or contract, and no union organizing activities are taking
place. The Company is not aware of any existing, threatened or imminent labor
disturbance involving the employees of any principal suppliers, manufacturers or
contractors of the Company. Except as disclosed on Schedule 4.14, neither the
Company, any of its Subsidiaries, nor any Person for whom any of them is or may
be responsible by law or contract, is a party to or bound by any collective
bargaining agreement contract or other agreement or understanding with a labor
union, organization or guild. The Company has provided the Buyer with copies of
all such agreements. To the knowledge of the Company, employer-employee
relations of the Company and its Subsidiaries are generally satisfactory.
(b) To the best knowledge of the Company, neither the Company nor any of
its Subsidiaries has violated any applicable federal, state, provincial or
foreign law relating to employment or employment practices or the terms and
conditions of employment, including, without limitation, discrimination in the
hiring, promotion or pay of employees, wages, hours of work, plant closings and
layoffs, collective bargaining, and occupational safety and health. Neither the
Company, any of its Subsidiaries nor any person for whom any of them is or may
be responsible by law or contract, is engaged in any unfair labor practice.
SECTION 4.15. Environmental Compliances. The Buyer acknowledges that it has
been given the opportunity to conduct environmental site assessments on the
properties of the Company and its Subsidiaries and has been given the
opportunity to review the operations of the Company and its Subsidiaries as well
as the environmental records relating to those operations. Except for
information which is included in the environmental audit report prepared by TRC
Environmental Corporation and which is not materially different than information
known to the Company, or except as set forth on Schedule 4.15, to the Company's
Knowledge:
(a) (i) each of the Company and its Subsidiaries has been and is in
compliance with all applicable Environmental Law except where
non-compliance could not, singly or in the aggregate, reasonably be
expected to have a Material Adverse Effect; (ii) each of the Company and
its Subsidiaries has all permits, licenses, registrations, authorizations
and approvals and financials assurance (including, without limitation,
rights under grandfather provisions, exemptions, waivers and the like)
("Environmental Permits") that are required to be held or provided by the
Company and its Subsidiaries in order to conduct their respective
businesses as currently operated under applicable Environmental Law, each
is in material compliance with the requirements of all such Environmental
Permits except where non-compliance could not, singly or in the aggregate,
reasonably be expected to have a Material Adverse Effect, and neither the
Company nor any of its Subsidiaries has been notified by any Governmental
Authority or has any basis to believe that any Environmental Permit may be
modified, suspended or revoked, or that any Environmental Permit
(including, without limitation, any air pollution permit under Title V of
the federal Clean Air Act) cannot be renewed or obtained in the ordinary
course of business; (iii) there is no Environmental Permit with respect to
which the Company and its Subsidiaries have failed to make timely
application or reapplication under Environmental Law; (iv) Schedule 4.15
lists all Environmental Permits held by the Company and its Subsidiaries,
and the Company has made copies of all Environmental Permits available for
inspection by the Buyer; (v) there are no pending or threatened
Environmental Claims against the Company or any of its Subsidiaries; (vi)
there are no orders or decrees (including, without limitation, consent
orders or consent decrees), judgments, settlements, agreements or other
binding obligations of any kind relating to Environmental Claims or
Environmental Law specifically applicable to the Company or any of its
Subsidiaries or to any property owned, leased or operated by the Company or
any of its Subsidiaries; and (vii) there are no environmental conditions or
occurrences at any of the properties owned or operated by the Company or
any of its Subsidiaries or to the Knowledge of the Company at any
properties formerly owned or operated by the Company or any of its
Subsidiaries nor any acts or omissions by the Company or any of its
Subsidiaries that could form the basis of any Environmental Claim against
the Company or any of its Subsidiaries which Environmental Claims could
reasonably be expected, singly or in the aggregate, to have a Material
Adverse Effect.
(b) (i) there is no friable asbestos-containing material ("ACM") in or
on any property currently owned, leased or operated by the Company or any
of its Subsidiaries, other than friable ACM which has
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been identified and abated in compliance with OSHA and applicable state
standards and which is subject to an operations and maintenance program as
recommended by the U.S. EPA; (ii) no underground storage tanks (including
underground storage tanks that do not have to be registered under
Environmental Laws) are or have been owned or operated by the Company or
any of its Subsidiaries on any property currently owned, leased or operated
by the Company or any of its Subsidiaries, and the Company has provided the
Buyer with all relevant information relating to any such underground
storage tank which the Company or any of its Subsidiaries have owned or
operated on such property; (iii) the Company or any of its Subsidiaries
have not used or operated any surface impoundments, landfills, waste piles,
injection wells, land treatment areas, incinerators or other solid waste
management units on any property currently owned, leased or operated by the
Company or any of its Subsidiaries, (iv) neither the Company nor any of its
Subsidiaries owns or operates any equipment containing PCBs in
concentration greater than 50 parts per million; and (v) Schedule 4.15
contains a list of all spills, discharges and other releases which were
required to be reported to Koppers Company, Inc. (including its successors)
under section 10.5(b) of the December 16, 1988 Agreement and identifies any
such spills, discharges or other releases which were not reported to
Koppers Company, Inc. (including its successors).
(c) (i) The Company has fully and accurately disclosed to the Buyer
all final environmental reports, studies, (including, but not limited to
risk assessments performed in connection with or in any way relating to or
referring to remedial actions, remedial investigations, environmental
audits, internal assessments of potential responsibility or liability under
Environmental Law), and records of agency audits under Environmental Law
(collectively "Environmental Studies") of which the Company and any of the
Subsidiaries have Knowledge and which relates to any property owned, leased
or operated by the Company or any of its Subsidiaries, and has provided the
Buyer with copies of all Environmental Studies in its possession or
control; (ii) the Company has fully and accurately disclosed to the Buyer,
and provided the Buyer with copies of all documents relating to or
evidencing, any communications by or from ISC Acquisition Company
(including its successors) and Koppers Company, Inc. (including its
successors) relating to Environmental Rights and Obligations, including,
without limitation, with respect to any claims made by any party under
Article X of the December 16, 1988 Agreement and the response of the other
party thereto; and (iii) the Company has fully and accurately disclosed to
the Buyer all Environmental Studies of which it has Knowledge relating to
environmental conditions on the adjoining property owned or operated by
Koppers, Inc. (including its successors) which may have adversely impacted
the property of the Company or any of its Subsidiaries or the natural
resources on or below the properties and has provided the Buyer with copies
of all such Environmental Studies.
(d) (i) Schedule 4.12 lists all properties which are or have been
owned, leased or operated by the Company or any of its Subsidiaries, and
(ii) the Company has provided the Buyer with copies of all Environmental
Contracts.
SECTION 4.16. Taxes. Except as otherwise disclosed in Schedule 4.16:
(a) The Company and each of its Subsidiaries have timely filed (or
have had timely filed on their behalf) or will file or cause to be timely
filed, all Tax Returns required by applicable law to be filed by any of
them prior to or as of the Closing Date, and all such Tax Returns are or
will be true, complete and correct except to the extent the failure to file
such Tax Returns or the failure of such Returns to be true, correct or
complete would not, singly or in the aggregate, result in a Tax deficiency
in excess of $50,000.
(b) The Company and each of its Subsidiaries have paid (or have had
paid on their behalf) within the time and in the manner prescribed by law,
or where payment is not yet due, have established (or have had established
on their behalf), or will establish or cause to be established on or before
the Closing Date, an adequate accrual for the payment of all material Taxes
due with respect to any period ending prior to or as of the Closing Date.
(c) No Audit by a Taxing Authority is pending or threatened in writing
with respect to any material Taxes due from the Company or any of its
Subsidiaries. There are no outstanding waivers extending the statutory
period of limitation relating to the payment of material Taxes due from the
Company or any of its Subsidiaries for any taxable period ending prior to
the Closing Date which are expected to be
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outstanding as of the Closing Date. No actions, suits or proceedings are
pending or have been threatened in writing against the Company or any of
its Subsidiaries in respect of Taxes.
(d) No issue has been raised in any Audit of the Company or any of its
Subsidiaries that, if raised with respect to any period not so audited,
could reasonably be expected to result in a proposed deficiency for such
other period. No deficiency or adjustment for any Taxes has been
threatened, proposed or asserted in writing or assessed against the Company
or any of its Subsidiaries.
(e) Neither the Company nor any of its Subsidiaries is bound by or is
a party to any material agreement related to Taxes, including any agreement
with any Tax Authority that can affect a Tax period commencing after the
Closing Date.
(f) There are no liens for Taxes upon any of the assets of the Company
or any of its Subsidiaries except liens for Taxes not yet due and payable.
SECTION 4.17. Employee Benefits.
(a) Schedule 4.17 contains a true and complete list of each bonus, deferred
compensation, incentive compensation, stock purchase, stock option, severance or
termination pay, hospitalization or other medical, life or other insurance,
supplemental unemployment benefits, profit-sharing, pension, or retirement plan,
program, agreement or arrangement, and each other employee benefit plan,
program, agreement or arrangement, sponsored, maintained or contributed to or
required to be contributed to by the Company or by any trade or business,
whether or not incorporated (an "ERISA Affiliate"), that together with the
Company would be deemed a "single employer" within the meaning of section
4001(b)(1) of the Employee Retirement Income Security Act of 1974, as amended,
and the rules and regulations promulgated thereunder ("ERISA"), for the benefit
of any employee or former employee of the Company, whether formal or informal
and whether legally binding or not (the "Plans"). Schedule 4.17 includes each of
the Plans that is an "employee welfare benefit plan," as defined in Section 3(1)
of ERISA ("Welfare Plans") or "employee pension benefit plan" as defined in
Section 3(2) of ERISA ("Pension Plans," and together with Welfare Plans,
hereinafter referred to collectively as the "ERISA Plans"). Except as set forth
in Schedule 4.17, neither the Company nor any ERISA Affiliate has any formal
plan or commitment, whether legally binding or not, to create any additional
Plan or modify or change any existing Plan that would affect any employee or
terminated employee of the Company or any ERISA Affiliate.
(b) With respect to each of the Plans (other than Plans maintained pursuant
to a collective bargaining agreement) the Company has not made any
representations to any Person that it will continue any such Plan beyond the
current plan year.
(c) With respect to each of the Plans, the Company has heretofore delivered
to Buyer true and complete copies of each of the following documents:
(i) a copy of the Plan (including any amendments thereto);
(ii) a copy of the annual report (the "Annual Report"), if required
under ERISA, with respect to such Plan for the last three years;
(iii) a copy of the actuarial report, if required under ERISA, with
respect to each such Plan for the last three years;
(iv) a copy of the most recent Summary Plan Description ("SPD"),
together with all Summaries of Material Modification issued with respect to
such SPD, required under ERISA with respect to such Plan, and all other
material employee communications relating to such Plan;
(v) if the Plan is funded through a trust or any other funding
vehicle, a copy of the trust or other funding agreement (including all
amendments thereto) and the latest financial statements thereof;
(vi) all contracts relating to the Plans with respect to which the
Company or any ERISA Affiliates may have any liability, including, without
limitation, insurance contracts, investment management agreements,
subscription and participation agreements and record keeping agreements;
and
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(vii) the most recent determination letter received from the Internal
Revenue Service with respect to each Plan that is intended to be qualified
under Section 401 of the Internal Revenue Code of 1986, as from time to
time amended (the "Code").
(d) No liability under Title IV of ERISA has been incurred by the Company
or any ERISA Affiliate since the effective date of ERISA that has not been
satisfied in full, and to the knowledge of the Company, no condition exists that
presents a material risk to the Company or an ERISA Affiliate of incurring a
liability under such Title, other than liability for premiums due the Pension
Benefit Guaranty Corporation ("PBGC"), which payments have been or will be made
when due. To the extent this representation applies to Sections 4064, 4069 or
4204 of Title IV of ERISA, it is made not only with respect to the ERISA Plans
but also with respect to any employee benefit plan, program, agreement or
arrangement subject to Title IV of ERISA to which the Company or an ERISA
Affiliate made, or was required to make, contributions during the five (5) year
period ending on the last day of the Company's most recent fiscal year.
(e) To the Knowledge of the Company, PBGC has not instituted proceedings to
terminate any of the ERISA Plans and no condition exists that presents a
material risk that such proceedings will be instituted.
(f) No material reportable event within the meaning of Section 4043 of
ERISA or prohibited transaction within the meaning of Section 406 of ERISA has
occurred with respect to any Plan, other than listed in Schedule 4.17 or the
Annual Report.
(g) To the knowledge of the Company, neither the Company, any ERISA
Affiliate, any of the ERISA Plans, any trust created thereunder nor any trustee
or administrator thereof has engaged in a transaction or has taken or failed to
take any action in connection with which the Company, any ERISA Affiliate, any
of the ERISA Plans, any such trust, any trustee or administrator thereof, or any
party dealing with the ERISA Plans or any such trust could be subject to either
a civil penalty assessed pursuant to Section 409 or 502(i) of ERISA or a tax
imposed pursuant to Section 4975, 4976 or 4908B of the Code.
(h) Full payment has been made, or will be made in accordance with Section
404(a)(6) of the Code, of all amounts which the Company or any ERISA Affiliate
is required to pay under the terms of each of the ERISA Plans and Section 412 of
the Code, and all such amounts properly accrued through the Closing with respect
to the current plan year thereof will be paid by the Company on or prior to the
Closing or will be recorded on the Balance Sheet; and none of the ERISA Plans or
any trust established thereunder has incurred any "accumulated funding
deficiency" (as defined in Section 302 of ERISA and Section 412 of the Code),
whether or not waived, as of the last day of the most recent fiscal year of each
of the ERISA Plans ended prior to the date of this Agreement.
(i) No Plan is a "multiemployer plan," as such term is defined in Section
3(37) of ERISA.
(j) Except as disclosed in Schedule 4.17, no amounts payable under the
Plans or any other agreement or arrangement to which the Company or any ERISA
Affiliate is a party will, as a result of the transaction contemplated hereby,
fail to be deductible for federal income tax purposes by virtue of Section 280G
of the Code.
(k) No "leased employee," as that term is defined in Section 414(n) of the
Code, performs services for the Company of any ERISA Affiliate.
(l) Except as set forth in the disclosure schedule, no Plan provides
benefits, including without limitation death or medical benefits (whether or not
insured), with respect to current or former employees after retirement or other
termination of service other than (i) coverage mandated by applicable law, (ii)
death benefits or retirement benefits under any "employee pension plan," as that
term is defined in Section 3(2) of ERISA, (iii) deferred compensation benefits
accrued as liabilities on the books of the Company or the ERISA Affiliates, or
(iv) benefits, the full cost of which is borne by the current or former employee
(or his beneficiary).
(m) With respect to each Plan that is funded wholly or partially through an
insurance policy, there will be no material liability of the Company or an ERISA
Affiliate, as of the Closing Date, under any such insurance policy or ancillary
agreement with respect to such insurance policy in the nature of a retroactive
rate
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adjustment, loss sharing arrangement or other actual or contingent liability
arising wholly or partially out of events occurring prior to the Closing Date.
(n) Each Pension Plan that is intended to be a qualified retirement plan
under Section 401(a) of the Code is so qualified and each trust thereunder was
exempt from United States federal taxation under Section 501(a) of the Code.
Prior to March 31, 1995, applications seeking further determinations with regard
to the Tax Reform Act of 1986 were submitted and are still pending on behalf of
the ESOP, Employee Savings Plan and the Retirement Plan for Salaried Employees.
Each Pension Plan and each Welfare Plan has been administered in all material
respects in compliance with ERISA and the Code and, to the extent not
inconsistent with ERISA and the Code, in accordance with the terms of each such
plan.
SECTION 4.18. No Other Broker. Other than Morgan Stanley & Co.,
Incorporated and Castle Harlan, Inc., no broker, finder or similar intermediary
has acted for or on behalf of the Company or any of its Subsidiaries in
connection with this Agreement or the transactions contemplated hereby, and no
broker, finder, agent or similar intermediary, other than Morgan Stanley & Co.,
Incorporated and Castle Harlan, Inc., is entitled to any broker's, finder's or
similar fee or other commission from the Company or any of its Subsidiaries in
connection therewith. Schedule 4.18 sets forth all fees and commissions so
payable.
SECTION 4.19. Insurance. Schedule 4.19 contains an accurate and complete
list of all policies of fire, liability, errors and omissions, officers and
directors, workers' compensation and other forms of insurance owned or held by
the Company and its Subsidiaries. All such policies are in full force and
effect, and premiums with respect thereto covering all periods up to and
including the Closing Date have been paid or accrued, and no notice of
cancellation or termination has been received with respect to any such policy.
Such policies are sufficient for compliance in all material respects with all
agreements to which the Company or any of its Subsidiaries is a party; are, to
the Company's knowledge, valid, outstanding and enforceable policies; and will
not by their terms in any way be affected by, or terminate or lapse by reason
of, the transactions contemplated by this Agreement.
SECTION 4.20. Compliance with Applicable Law. The business of the Company
and its Subsidiaries has been and is currently being conducted in substantial
compliance with all applicable material laws, ordinances, rules, regulations,
decrees or orders of any Governmental Authority and the Company and its
Subsidiaries hold all material permits, licenses, variances, exemptions, orders
and approvals of all Governmental Authorities necessary for the lawful conduct
of their business (the "Company Permits"). The Company and its Subsidiaries are
in substantial compliance with the terms of the material Company Permits. The
representations and warranties set forth in this Section 4.20 are not being made
with respect to the subject matter of the representations and warranties made in
Sections 4.14, 4.15, 4.16 and 4.17.
SECTION 4.21. Non-Applicability of Certain Regulations. The Company is not,
and does not conduct its operations in a manner that could reasonably be
expected to subject it to registration as, an "investment company" under the
U.S. Investment Company Act of 1940, as amended. Neither the Company nor any of
its Subsidiaries is subject to, nor does any of them conduct its operations in a
manner that subjects any of them to, regulation under the U.S. Public Utility
Holding Company Act of 1935, as amended, the U.S. Federal Power Act, as amended,
the U.S. Natural Gas Act, as amended, or any similar law, rule or regulation of
any Governmental Authority.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF BUYER
The Buyer represents and warrants to the Company that:
SECTION 5.1. Incorporation; Qualification and Corporate Authority. The
Buyer has been duly incorporated and is validly existing and in good standing
under the laws of the State of Delaware, with all requisite corporate power and
authority to enter into this Agreement and perform its obligations hereunder.
SECTION 5.2. Capitalization. The shares of Buyer Common Stock which will be
delivered in the Exchange pursuant to the terms of this Agreement are duly
authorized and, upon delivery thereof pursuant to
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the Exchange Offers, will be validly issued, fully paid and nonassessable and
not subject to preemptive rights created by statute, the Buyer's Certificate of
Incorporation, By-Laws or any agreement to which the Buyer is or will become a
party or is bound.
SECTION 5.3. Binding Obligation. The execution and delivery of this
Agreement and the performance by the Buyer of its obligation hereunder have been
duly authorized by all necessary corporate action on the part of the Buyer and
this Agreement has been duly executed and delivered by the Buyer. Assuming this
Agreement constitutes a valid and binding obligation of the Company, this
Agreement constitutes the legal, valid and binding obligation of the Buyer,
enforceable against the Buyer in accordance with its terms, except to the extent
that the enforceability thereof may be limited by: (i) applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or similar laws
from time to time in effect affecting generally the enforcement of creditors'
rights and remedies; and (ii) general principles of equity, including, without
limitation, principles of reasonableness, good faith and fair dealing
(regardless of whether enforcement is sought in equity or at law).
SECTION 5.4. No Defaults or Conflicts. The execution and delivery of this
Agreement by the Buyer and performance by the Buyer of its obligations hereunder
(i) do not and, as of the Closing, will not result in any violation of the
charter or by-laws of the Buyer; and (ii) as of the Closing, will not conflict
with, or result in a breach of any of the terms or provisions of, or constitute
a default under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Buyer (except for such conflicts,
breaches or defaults or liens, charges or encumbrances that would not adversely
affect the consummation of the Exchange or the value of the Exchange
Consideration) under: (A) any indenture, mortgage or loan or any other agreement
or instrument to which the Buyer is a party or by which the Buyer may be bound
or to which any of its properties may be subject; or (B) any existing applicable
law, rule, regulation, judgment, order or decree of any Governmental Authority
having jurisdiction over the Buyer or any of its properties, other than: (x) the
consents, approvals and notices, which are set forth in Section 6.4, and
required under Delaware law, and (y) filings, authorizations, consents or
approvals the failure to make or obtain which would not adversely affect the
consummation of the Exchange and or the value of the Exchange Consideration.
SECTION 5.5. No Authorization or Consents Required. Other than as listed in
Schedule 5.5, no consent, authorization or approval or other action by, and no
notice to or filing with, any Governmental Authority or other persons will be
required to be obtained or made by the Buyer in connection with the due
execution and delivery by the Buyer of this Agreement and the consummation by
the Buyer of the transactions contemplated hereby.
SECTION 5.6. No Actions, Suits or Proceedings. There is no pending nor, to
the knowledge of the Buyer, threatened action, suit or proceeding, against the
Buyer before any Governmental Authority that questions the validity or legality
of this Agreement or of the transactions contemplated hereby, or which seeks to
prevent the consummation of the transactions contemplated hereby, including the
Merger and the Exchange.
SECTION 5.7. Sufficient Funds. The Buyer has available to it, and as of the
Closing will have, sufficient funds readily available to make any payment
required under Section 3.14 of the Indenture required by reason of a Change of
Control.
SECTION 5.8. No Other Broker. No broker, finder or similar intermediary has
acted for or on behalf of Buyer in connection with this Agreement or the
transactions contemplated hereby, and no broker, finder, agent or similar
intermediary is entitled to any broker's, finder's or similar fee or other
commission in connection therewith based on any agreement, arrangement or
understanding with Buyer or any action taken by Buyer.
SECTION 5.9. Reports and Financial Statements. (a) The Buyer has previously
furnished the Company with true and complete copies of: (i) the Annual Report on
Form 10-K for the year ended December 31, 1994 filed by the Buyer with the SEC,
(ii) the Quarterly Reports on Form 10-Q for the three months and six months
ended March 31, 1995 and June 30, 1995 filed by the Buyer with the SEC, and
(iii) all other reports filed by the Buyer with the SEC since December 31, 1994.
As of their respective dates, such reports and statements (the "Buyer SEC
Documents") complied in all material respects with the requirements of the
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Exchange Act and the rules and regulations of the SEC promulgated thereunder
applicable to such Buyer SEC Documents, and none of the Buyer SEC Documents, as
of their respective dates, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
(b) The financial statements of the Buyer included in the Buyer SEC
Documents, as of their respective dates, complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, were prepared in accordance with
GAAP during the period involved (except as may be indicated in the notes
thereto), and present fairly in all material respects the financial position as
of the dates thereof and the results of operations and cash flows for the
periods then ended (subject, in the case of unaudited interim statements, to
normal year-end audit adjustments in accordance with GAAP and the absence or
condensation of footnotes as permitted by GAAP in respect of interim financial
statements).
SECTION 5.10. Purchase for Investment. The Buyer is acquiring the Subject
Shares solely for investment with no present intention to distribute any of the
Subject Shares to any person in violation of the Securities Act of 1933, as
amended (the "Securities Act") or any other applicable securities laws, and
Buyer will not sell or otherwise dispose of any of the Subject Shares, except in
compliance with the registration requirements or exemption provisions under the
Securities Act and the rules and regulations promulgated thereunder, and any
other applicable securities laws.
ARTICLE VI.
COVENANTS
From the date of this Agreement up to and including the Closing Date
(unless this Agreement is terminated pursuant to Article VIII or unless
otherwise specified), the parties hereto covenant and agree as follows:
SECTION 6.1. Conduct of Business. Each of Company and its Subsidiaries
shall conduct its businesses only in the ordinary course and consistent with
past practices, and shall use its best efforts to preserve intact its business
organization and material assets and maintain the rights, franchises and
business and customer relations used in or necessary to conduct its businesses
in the ordinary course consistent with past practice. Without limiting the
generality of the foregoing, during the period from the date of this Agreement
to the Closing Date, the Company shall not and shall not permit any of its
Subsidiaries to take any action set forth in Sections 4.4(ii), (iii), (iv) and
(vii) or to (A) increase the compensation payable or to become payable to
executive officers or employees of the Company or any of its Subsidiaries, (B)
grant any severance or termination pay to, or enter into any employment or
severance agreement with, any director, executive officer or employee of the
Company or any of its Subsidiaries or (C) establish, adopt, enter into or amend
in any material respect, or take action to accelerate any rights or benefits
under, any stock option plan or agreement, employee benefit plan, agreement or
policy, except as specifically contemplated by this Agreement.
SECTION 6.2. No Negotiations. The Company shall not, and shall not permit
any of its Subsidiaries, affiliates or any other Person acting for or on behalf
of any of them to solicit, or entertain offers from, negotiate with, or in any
manner discuss, encourage, recommend or agree to any proposal relating to (a)
the sale of the stock or assets of the Company or any of its Subsidiaries or any
interest therein, (b) the merger, consolidation or other combination of the
Company or any of its Subsidiaries with any Person, or (c) the liquidation,
dissolution or reorganization of the Company or any of its Subsidiaries, except
as specifically contemplated by this Agreement. Without limiting the generality
of the foregoing, the Company shall not, and shall not permit any of its
Subsidiaries, affiliates or any other Person acting for or on behalf of any of
them to furnish or cause to be furnished any information with respect to the
Company or any of its Subsidiaries to any Person (other than the Buyer and its
employees and agents). If the Company or any of its Subsidiaries, affiliates or
agents receives from any Person any offer, proposal or informational request
that may be subject to this Section, the Company shall promptly advise such
Person, by written notice, of the terms of this Section and shall promptly
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deliver a copy of such notice to the Buyer. Notwithstanding the foregoing, if
the Board of Directors is advised by counsel in writing that its fiduciary
duties require it to take any of the actions set forth in the first sentence of
this Section with respect to any proposal, the Company may take such actions.
The Company shall deliver a copy of such opinion of counsel to the Buyer, and
shall deliver to the Buyer copies of all communications received from or made to
the Person who has made such proposal within one day after the Chief Executive
Officer is notified thereof.
SECTION 6.3. Expenses. Whether or not the Exchange is consummated, the
Buyer, on the one hand, and the Company, on the other hand, shall each bear
their respective costs and expenses incurred in connection with the negotiation
and preparation of this Agreement and the consummation of the transactions
contemplated hereby; provided, that printing and mailing fees associated with
the Registration Statement, the prospectuses included therein and the Proxy
Statement (as defined in Section 6.10) and fees incurred in connection with
preparation of audited consolidated financial statements of the Company and its
Subsidiaries for the 12-month period ended September 30, 1995 (the "September 30
Financials") shall be borne equally by the Buyer and the Company.
Notwithstanding the foregoing, if the Exchange is consummated, the fees of
Morgan Stanley & Co., Incorporated and the fees and expenses of Castle Harlan,
Inc. shall be borne solely by the Buyer.
SECTION 6.4. Further Assurances. The Company and the Buyer shall each use
commercially reasonable efforts to (i) take promptly, or cause to be taken, all
appropriate action, and do, or cause to be done, all things necessary, proper or
advisable under applicable laws to consummate and make effective the
transactions contemplated by this Agreement, the Merger Agreement, the Voting
Agreement and the Enabling Agreement dated the date hereof by and between the
Company and the Buyer (the "Enabling Agreement") as promptly as practicable,
(ii) obtain promptly from any governmental entities any consents, licenses,
permits, waivers, approvals, authorizations or orders required to be obtained or
made by the Company or the Buyer or any of their subsidiaries in connection with
the authorization, execution and delivery of this Agreement and the consummation
of the transactions contemplated herein, including, without limitation, the
Merger and the Exchange Offers, and (iii) make promptly all necessary filings,
and thereafter make any other required submissions, with respect to this
Agreement and the Merger and the Exchange Offers required under (A) the
Securities Act, the Exchange Act, blue sky laws of any jurisdiction, or the
rules and regulations of the National Association of Securities Dealers or the
New York Stock Exchange, as the case may be, (B) the HSR Act and (C) any other
applicable laws; provided that each of the Company and the Buyer shall cooperate
in connection with the making of all such filings, including providing (to the
extent customary in the case of filings under the HSR Act) copies of all such
documents to the non-filing party and its advisors, including any work papers in
connection with the preparation of the September 30 Financials, prior to filing
and consider in good faith all reasonable additions, deletions or other changes
suggested by the other party in connection therewith. Each of the Company and
the Buyer shall furnish to the other party all information required for any
application or other filing to be made pursuant to any applicable law (including
all information required to be included in the Proxy Statement, the Offers to
Exchange and the Registration Statements) and in connection with the Merger, the
Exchange Offers and the other transactions contemplated by this Agreement.
SECTION 6.5. Notice of Events. The Company shall give prompt notice to the
Buyer, and the Buyer shall give prompt notice to the Company, of (i) the
occurrence or non-occurrence of any event of which it has knowledge, the
occurrence or non-occurrence of which would be likely to result in any of the
conditions specified in (x) in the case of the Buyer, Section 7.1 or 7.3 or (y)
in the case of the Company, Section 7.2 or 7.3 not being satisfied so as to
permit the commencement of the Exchange in accordance with the time schedule
contemplated by this Agreement, and (ii) any material failure on its part, or on
the part of the other party hereto of which it has knowledge, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder; provided, however, that the delivery of any notice pursuant to
this Section 6.5 shall not limit or otherwise affect the remedies available
hereunder to party.
SECTION 6.6. Access to Information. (a) The Company will, and will cause
its Subsidiaries to, during regular business hours and on reasonable prior
notice, allow the Buyer and its authorized representatives full access to the
employees, books, records, offices and other facilities and properties of the
Company and its
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Subsidiaries; provided, however, that any such access shall not unreasonably
interfere with the businesses or operations of the Company. Such access shall be
coordinated through the President, Chief Financial Officer and General Counsel
of the Company, as appropriate.
(b) From the date hereof until the Closing Date, the Company shall promptly
provide to the Buyer copies of each agreement, amendment, extension or other
instrument executed and delivered by the Company during such period that would
be subject to the approval of the Surviving Corporation's Board of Directors
under the provisions of the Surviving Corporation's By-laws in the form attached
as Exhibit B to the Merger Agreement.
(c) Any information provided to or obtained by the Buyer or its authorized
representatives pursuant to subsection (a) above, or otherwise in connection
with this Agreement, shall be subject to the provisions of the Confidentiality
Agreement dated May 23, 1995 between the Company and the Buyer (the
"Confidentiality Agreement"), except as otherwise permitted by this Agreement.
SECTION 6.7. Indemnification and Insurance. (a) Buyer agrees that all
rights to indemnification and exculpation from liability for acts or omissions
occurring prior to the Closing now existing in favor of the current or former
directors, officers or employees of the Company and the Subsidiaries, as
provided in their respective certificates of incorporation or by-laws or in
indemnification agreements to which they are a party, shall survive the Closing
Date and shall continue in full force and effect in accordance with their
respective terms for a period of not less than six (6) years after the Closing
Date.
(b) Buyer shall take all efforts within its control to cause the Company
(including binding its successors, if any) to maintain, for a period of not less
than six (6) years after the Closing Date, all of the Company's and the
Subsidiaries' directors' and officers' insurance and indemnification policies
affording coverage that is substantially the same as under policies in effect on
the date hereof and with policy limits that are not less than in effect on the
date hereof to the extent that such policies provide coverage for events
occurring prior to the Closing Date (collectively, the "D&O Insurance") for all
persons who are directors, officers or employees of the Company or any
Subsidiary on the date hereof, for as long as the annual premium therefor would
not exceed 250% of the current annual premium in effect as of the date of this
Agreement (250% of such premium being referred to herein as the "Maximum
Premium"); provided, however, that the Company may, in lieu of maintaining such
D&O Insurance as provided above, cause comparable coverage to be provided under
any policy maintained for the benefit of the directors, officers and employees
of the Buyer or any of its direct or indirect subsidiaries, so long as: (i) the
issuer thereof has at least an equal claims-paying rating; and (ii) the terms
thereof are no less advantageous to the directors, officers and employees of the
Company and the Subsidiaries than the existing D&O Insurance. If the existing
D&O Insurance expires, is terminated or cancelled during such six (6) year
period, the Buyer shall cause the Company to use its reasonable efforts to cause
to be obtained as much D&O Insurance as can be obtained for the remainder of
such period for an annualized premium not in excess of the Premium, on terms and
conditions no less advantageous to the directors, officers and employees of the
Company and the Subsidiaries than the existing D&O Insurance.
SECTION 6.8. Employees and Employee Benefit Plans.
(a) A true and complete list of the names, positions and salaries or hourly
rates, as applicable, of the employees of the Company and its Subsidiaries shall
be provided to the Buyer within ten days of signing this Agreement and shall be
updated effective the last day of each calendar quarter thereafter. A true and
complete list of the names, termination dates and benefit plans under which
benefit obligations exist for each Former Employee will be provided by the
Company to the Buyer not more than ten days after signing this Agreement and
will be updated effective the last day of each year thereafter.
(b) The Buyer agrees to cause the Company and its Subsidiaries to
compensate Employees that (i) are not party to any employment agreement, (ii)
are not covered by a collective bargaining agreement and (iii) are employed by
the Company or its Subsidiaries on and after the Conversion Date, at salaries or
hourly rates at least equal to (y) the salaries or hourly rates of the Company
or its Subsidiaries in effect immediately prior to the Conversion Date or (z)
the salaries or hourly rates payable to employees in the Buyer's chemical
operation in similar jobs, the determination of which shall be at the sole
discretion of the Buyer.
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Notwithstanding the foregoing, nothing in this Agreement shall require the Buyer
to maintain, or to cause the Company or its Subsidiaries to maintain the
employment of any present or future Employee or group of Employees, which
employment may be terminated at any time in the sole discretion of the duly
appointed officers of the Company or its Subsidiaries or their respective Boards
of Directors, as the case may be, subject only to any binding written employment
agreement between the Company or its Subsidiaries and any such Employee.
(c) The Buyer agrees to cause the Company and its Subsidiaries to pay to
any Employees that (i) are not party to any employment agreement, (ii) are not
covered by a collective bargaining agreement and (iii) are terminated by the
Company other than for cause on or within twelve months after the Conversion
Date, severance payments in accordance with the Buyer's severance policy as in
effect at Closing (a copy of which is attached as Schedule 6.8(c)) as applicable
to the employees in its chemical operations of like job status and service, and
including service recognized by the Company. In addition, an additional twelve
weeks of base pay shall be added to the amount due under Schedule 6.8(c) for any
Employees terminated within six months after the Conversion Date.
(d) The Buyer agrees to cause the Company and its Subsidiaries to provide
after the Conversion Date to Employees that are employed by the Company or the
Subsidiaries, benefit plans and programs to the extent such person is eligible
for such benefits prior to the Conversion Date, under either (i) the Company's
benefit plans as in effect prior to the Conversion Date, (ii) benefit plans
applicable to employees in the Buyer's chemical operations in similar jobs or
(iii) a combination of the Company's and Buyer's plans, the determination of
which is at the sole discretion of the Buyer, except that the Buyer agrees to
continue the Company's medical benefits (or comparable medical benefits) for
salaried employees as in effect immediately prior to the Conversion Date until
the end of the calendar year following the year in which the Conversion Date
occurs, provided that the Company's average per employee premium cost for
medical coverage for salaried employees for the plan year prior to the year in
which Conversion Date occurs is less than Buyer's average medical plan cost for
its salaried employees for the same period. Under such benefit programs, (y)
service with, and that is recognized by, the Company or its Subsidiaries shall
be counted for purposes of determining (A) any period of eligibility to
participant or to vest in benefits and (B) the accrual of benefits under such
programs, except to the extent that such service credit would result in
duplicate benefit coverage for such service, and (z) Employees and their
eligible dependents, if a participant in the Company health, long term
disability or life insurance plans, as applicable, shall be deemed to satisfy
any pre-existing condition limitations under group medical, dental, life
insurance or disability plans that shall be provided after the Conversion Date
and amounts paid by such employees towards deductibles and copayment limitations
under the Buyer health plans shall be counted toward meeting any similar
deductible and copayment limitations under the health plans that shall be
provided. In addition, with respect to salaried retirement benefits, the Buyer
agrees to cause the Company or its Subsidiaries either (i) to continue the
salaried retirement plan as in effect on the date immediately prior to the
Conversion Date for at least the two-year period following the Conversion Date
or (ii) to provide to salaried Employees the retirement plan applicable to
employees in the Buyer's chemical operations in similar jobs along with the
pension supplement under the Company's salaried retirement plan for certain
salaried employees in accordance with the terms set forth in Schedule 6.8(d);
provided, however, if the benefits provided immediately prior to the Conversion
Date under either the Buyer's or the Company's retirement plans are not
substantially similar to those provided at Closing, then the Buyer and the
Company agree to cooperate in good faith to provide the salaried Employees
described in Schedule 6.8(d) with an alternative pension supplement to achieve a
general pattern of total pension benefits comparable to that provided by
Schedule 6.8(d), assuming retirement age 65. Notwithstanding the foregoing,
nothing in this Agreement shall require the Buyer, the Company or its
Subsidiaries to maintain any particular plan, program or arrangement following
the Conversion Date, the maintenance or termination of all of which shall be at
the sole discretion of the Buyer.
(e) The Company agrees to administer, and to cause its Subsidiaries to
administer, the Plans, from the date of this Agreement to the Conversion Date,
in accordance with their terms and applicable laws and regulations, including,
without limitation, ERISA and, with respect to a plan intended to be qualified
under the Code, with all applicable qualification requirements under the Code.
The Company agrees that all
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contributions, premiums, and payments shall be made on a current basis and no
arrangements will be designed or pursued in order to postpone such payments.
(f) The Company agrees to comply, and to cause its Subsidiaries to comply,
in all material respects with all applicable laws pertaining to employment and
employment practices and wages, hours, and other terms and conditions of
employment with respect to their Employees. The Company agrees to notify Buyer
in the event of any pending or threatened labor dispute, strike, lockout, work
stoppage, or slowdown against the Company or its Subsidiaries or any proceeding,
threatened or actual, by or before the National Labor Relations Board, the Equal
Employment Opportunity Commission, the Department of Labor or any other
governmental entity in connection with any current, former or prospective
employee of the Company or its Subsidiaries or any of the Company's Plans.
(g) If a collective bargaining agreement is to be negotiated or
renegotiated prior to the Conversion Date, the Company shall consult in good
faith with Buyer on the terms and conditions to be included in such
negotiations.
SECTION 6.9. No Section 338 Election; Certain Transactions
Prohibited. Neither Buyer nor any affiliate thereof shall make an election under
Section 338 of the Internal Revenue Code of 1986, as amended, or any similar
provision of state or local law, in respect of the Exchange, the Merger or the
other transactions contemplated by this Agreement. In addition, neither Buyer
nor any affiliate thereof shall cause the Company to engage in any transaction
(including, without limitation, the merger of the Company with a direct or
indirect subsidiary of Buyer) that could cause the Merger or the Exchange or the
other transactions contemplated by this Agreement to be treated as a purchase or
sale of assets of the Company or any Subsidiary. Notwithstanding Section 9.1,
this covenant shall survive the Closing Date.
SECTION 6.10. Registration. (a) As soon as practicable after the date
hereof, the Buyer shall prepare and file with the SEC two Registration
Statements on Form S-4 (such registration statements, as the same may be amended
from time to time, the "Registration Statements") under the Securities Act, the
first (the "Redemption Registration Statement") containing a prospectus relating
to the Buyer Common Stock to be issued upon the redemption of the Class A Common
Stock by its terms, which prospectus will accompany the Company's information or
proxy statement (the "Proxy Statement") soliciting the Stockholder Approvals and
the second (the "Exchange Offer Registration Statement") containing a prospectus
relating to the Buyer Common Stock to be offered in the Exchange Offers (such
prospectuses, together with any amendments thereof or supplements thereto, in
each case in the form or forms mailed to the Company's shareholders, the
"Prospectuses"). The Company shall provide the Buyer with all information
concerning the Company as the Buyer may reasonably request in connection with
the preparation of the Registration Statements, including such financial
statements of the Company as may be necessary or desirable to comply with the
applicable provisions of the Securities Act, the Exchange Act and the rules and
regulations thereunder. The Company shall provide the Buyer with an opportunity
to review all work papers prepared or used in connection with the preparation of
any audited financial statements that may be included in the Registration
Statements. The Buyer will use commercially reasonable efforts to have or cause
the Registration Statements to become effective as promptly as practicable.
(b) Each of the Company and the Buyer agrees that the information relating
to it contained or incorporated by reference into the Registration Statements
and the Proxy Statement shall not, at the date thereof (or any amendment thereof
or supplement thereto), at the date that the Proxy Statement is first mailed to
stockholders, at the Commencement Date, at the time of the Stockholders Meeting,
on the Effective Date or on the Closing Date (i) contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading or (ii)
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they are made, not
misleading. If at any time prior to the Closing Date any event or circumstances
should be discovered by either party hereto which should be set forth in an
amendment to the Registration Statements or a supplement to the Proxy Statement,
such party shall promptly inform the other party. All documents that each party
is responsible for filing with the SEC in connection with the transactions
contemplated hereby will
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be filed on a timely basis and will comply as to form and substance in all
material respects with the applicable requirements of the Securities Act and the
Exchange Act.
SECTION 6.11. Merger Agreement. The Company shall not amend the Merger
Agreement or waive or modify any of the provisions thereof without the prior
written consent of the Buyer.
SECTION 6.12. Meeting of Stockholders. The Company shall promptly take all
action necessary in accordance with the DGCL and its Certificate of
Incorporation and By-laws to convene a meeting of the stockholders of the
Company to consider the Merger, including, without limitation, the mailing of
the Proxy Statement to the Company's stockholders (such meeting, including any
adjournments or postponements thereof, being the "Stockholders Meeting");
provided, however, that the Company shall not be obligated to convene the
Stockholders Meeting if it obtains the written consent to the Merger of holders
of at least 90% of outstanding Company Common Stock. As soon as practicable
after the Redemption Registration Statement shall have become effective, the
Company shall mail to its stockholders the Proxy Statement and the prospectus
included in the Redemption Registration Statement. The Proxy Statement shall
include the recommendation of the Company's Board of Directors in favor of the
Merger, unless otherwise required by the applicable fiduciary duties of the
directors of the Company, as determined by such directors in good faith after
consultation with and based upon the written advice of independent legal
counsel. The Company shall use its best efforts to solicit the approval of the
Merger by all holders of Company Common Stock and shall take all other actions
necessary or advisable to secure the Stockholder Approval, unless otherwise
required by the applicable fiduciary duties of the Board of Directors of the
Company, as determined by such directors in good faith.
SECTION 6.13. Additional Consideration. On the Closing Date, the Buyer
shall issue and deliver to each holder of Options (the "Retained Options") or
shares of Class A Common Stock (the "Retained Stock" and, together with the
shares of Class A Common Stock for which any Retained Options are exercisable,
the "Retained Securities") not purchased pursuant to Section 3.1, that number of
shares of Buyer Common Stock determined by multiplying (a) the number of
Retained Securities held by such holder, by (b) the quotient obtained by
dividing (i) $3 million by (ii) the total number of Retained Securities held by
all holders, and dividing the result by (iii) the Buyer Common Stock Value. Cash
shall be paid by the Buyer in lieu of issuing fractional shares of Buyer Common
Stock as provided by Section 3.6.
SECTION 6.14. Insurance Maintenance. The Company will use its reasonable
efforts to assure that all of the insurance policies that are listed in Schedule
4.19 and that are material to the Company and its Subsidiaries, taken as a
whole, will remain in full force and effect on the Closing Date or be replaced
by comparable policies.
SECTION 6.15. September 30 Financials. The Company shall cause its
independent public accountants to conduct an audit of the September 30
Financials and shall deliver the September 30 Financials to the Buyer for
inclusion in the Registration Statements.
SECTION 6.16. Additional Information. The Company shall deliver to the
Buyer any documents which would be required to be described in or filed as an
exhibit to any SEC Document prepared after the date hereof.
ARTICLE VII.
CONDITIONS PRECEDENT TO THE CONSUMMATION
OF THE MERGER AND THE COMMENCEMENT OF THE EXCHANGE OFFERS
SECTION 7.1. Conditions Precedent of Buyer to Commence the Exchange
Offers. The obligation of the Buyer to commence the Exchange Offers is subject
to the satisfaction of the following conditions, any one or more of which may be
waived by the Buyer, in its sole discretion:
(a) The Merger of the Company and Roundtable pursuant to the Merger
Agreement shall have become effective in accordance with all applicable
laws.
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(b) The representations and warranties of the Company set forth in
Article IV shall be true and correct in all material respects when made
and, other than with respect to the representations and warranties set
forth in Sections 4.4(i), 4.4(v), 4.4(vi), 4.10, 4.11, 4.12(d), 4.14(a),
4.15 and 4.19, as of the Commencement Date as though made on such date, and
the Company shall have complied in all material respects with all
agreements and satisfied all conditions set forth herein on its part to be
performed or satisfied on or prior to the Commencement Date.
(c) The Buyer shall have received on or prior to the Commencement Date
(i) a certificate, dated as of the Commencement Date, from the President of
the Company on behalf of the Company, in such individual's capacity as an
officer of the Company and not as an individual, to the effect that each of
the conditions set forth in this Section 7.1 has been satisfied, and (ii) a
certificate, dated as of the Commencement Date, from the Secretary of the
Company certifying as to the accuracy and completeness of the attached
by-laws, and resolutions, consents and authorizations with respect to the
execution and delivery of this Agreement and the transactions contemplated
hereby and such other matters as the Buyer may reasonably request.
(d) The Company shall have received agreements, in form and substance
reasonably satisfactory to the Buyer, each effective as of the Closing
Date, relating to (i) the termination of the Management Agreement (the
"Castle Harlan Management Agreement") dated December 2, 1993, between
INDSPEC Chemical Corporation and Castle Harlan, Inc., providing for the
termination of such agreement except for the continuation of the
indemnification obligation of INDSPEC Chemical Corporation provided
therein; (ii) the satisfaction and release of the March 7, 1995 engagement
agreement between Castle Harlan, Inc. and the Company, provided that such
release shall not apply to the indemnification and contribution provisions
of such agreement; (iii) the satisfaction and release of the March 7, 1995
engagement agreement between Morgan Stanley Co., Incorporated and the
Company, provided that such release shall not apply to the indemnification
and contribution provisions of such agreement; (iv) the termination or
amendment of the Stockholders Agreement as amended by Amendment No. 1
between INDSPEC Chemical Corporation and certain other parties named
therein; (v) the designation of the Buyer as the Company's Designee under
Section 3(c) of the Employee Stockholders Agreement between the INDSPEC
Chemical Corporation and certain other parties named therein or the
assignment of rights of first refusal thereunder; (vi) the termination of
the Voting Trust Agreement, dated as of December 16, 1993 among John K.
Castle and certain other parties named therein; and (vii) the termination
of the Employee Voting Trust Agreement, dated April 15, 1994 among John K.
Castle and certain other parties named therein.
(e) The Buyer shall have received (i) the signed opinion of William S.
Lee, General Counsel of the Company, as to the matters set forth on Exhibit
A hereto with appropriate qualifications and exceptions in form and
substance reasonably satisfactory to the Buyer; (ii) the signed opinion of
Eckert Seamans Cherin & Mellott, special counsel for the Company, as to the
matters set forth on Exhibit B hereto with appropriate qualifications and
exceptions in form and substance reasonably satisfactory to the Buyer; and
(iii) the signed opinion of Schulte Roth & Zabel, special counsel to CHPII
and Roundtable, in form and substance reasonably satisfactory to Buyer,
covering such matters as are customarily addressed in similar opinions in
comparable transactions, including (without limitation) organization, due
authority, execution and delivery, conflicts, enforceability and
governmental consents.
(f) The representations and warranties of all parties to the Merger
Agreement and the Voting Agreement shall be true and correct in all
material respects as of the date hereof and on and as of the Commencement
Date, and all parties to the Merger Agreement and the Voting Agreement
shall have performed or complied, in all material respects, with all
covenants and agreements set forth therein.
(g) Either (i) holders of at least 90% of the outstanding shares of
Company Common Stock shall have voted in favor of, or consented to, the
Merger or (ii) holders of less than 10% of the outstanding shares of
Company Common Stock shall be eligible for appraisal rights under the DGCL.
(h) The directors of the Company identified in Schedule 7.1(h) shall
have submitted their resignations effective as of the Closing Date, as
directors of the Company and the Subsidiaries.
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(i) The average of the last sales price (regular way) of Buyer Common
Stock on the New York Stock Exchange on each of the twenty (20) consecutive
trading days ending on the fifth trading day prior to the Commencement Date
shall be at least $15, provided, that if the Buyer determines that, based
on this condition, it will not proceed with the Exchange Offers, the Buyer
shall notify the Company, who may elect, by determination of a majority of
the directors elected by holders of the Class B Common Stock, to consummate
the transactions contemplated hereby based on a deemed Buyer Common Stock
Value of $15, and in such event, this condition shall not apply for these
purposes or for purposes of Annex B.
(j) The Buyer will not be required to consolidate in the Buyer's
consolidated financial statements the results of operations of the Company
or any of its Subsidiaries after giving effect to the Exchange.
(k) The Buyer shall have received the September 30 Financials from the
Company.
(l) The transactions contemplated by the Management Agreement with
Southern Ionics, Inc., dated April 1, 1995 shall have been consummated.
(m) The Buyer shall have received from the independent public
accountants for the Company a letter, dated as of the date on which the
Redemption Registration Statement shall have become effective, the
Effective Date, the date on which the Exchange Registration Statement shall
have become effective and the Commencement Date, addressed to the Buyer and
its Board of Directors in form and substance satisfactory to the Buyer and
reasonably customary in scope and substance for letters delivered by
independent public accountants in connection with transactions such as
those contemplated by this Agreement.
(n) There shall not be any ongoing Material Plant Loss; provided,
however, that if this condition is not satisfied on the Closing Date, the
Exchange Offers shall be extended until the tenth business day after
satisfaction of this condition but in no event later than June 30, 1996.
(o) The Company's Incentive Stock Option Plans shall have been amended
to provide that the Board of Directors of the Company shall be authorized,
as of the Closing Date, to administer such Plan.
(p) The Certificates of Incorporation and By-Laws of the Subsidiaries
shall have been amended, effective as of the Closing Date, to include
provisions that are the same, or substantially the same, as the provisions
in the Certificate of Incorporation and By-Laws of the Surviving
Corporation, in the forms attached to the Merger Agreement, other than the
provisions related to capitalization.
SECTION 7.2. Conditions Precedent of the Company to Consummate the
Merger. The obligation of the Company to consummate the Merger is subject to the
satisfaction, on or prior to the Effective Date, of the following conditions,
any one or more of which may be waived by the Company in its sole discretion:
(a) The representations and warranties of the Buyer set forth in this
Agreement shall have been accurate in all material respects when made, and
with respect to the representations and warranties set forth in Sections
5.1 through 5.8 as of the Effective Date as though made on such date and
the Buyer shall have complied with all agreements and satisfied all
conditions set forth herein on their part to be performed or satisfied at
or prior to the Effective Date.
(b) The Company shall have received on or prior to the Effective Date
(i) a certificate, dated as of the Effective Date, from the Chairman,
President and Chief Executive Officer or the Senior Operating Officer of
Buyer, in such individual's capacity as an officer of the Buyer, and not as
an individual, to the effect that each of the conditions set forth in this
Section 7.2 has been satisfied, and (ii) a certificate, dated as of the
Effective Date, from the Secretary or Assistant Secretary of the Buyer
certifying as to the accuracy and completeness of the attached by-laws and
resolutions, consents and authorizations with respect to the execution and
delivery of this Agreement and the transactions contemplated hereby and
such other matters as to the Company may reasonably request.
(c) Castle Harlan, Inc. shall have received the balance of the fee
payable under the Castle Harlan Management Agreement through the last day
of the month in which the Closing Date is scheduled to
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occur; provided, however, that Castle Harlan, Inc. shall not be entitled to
any such fee payable for the period January 1, 1996 through April 30, 1996.
(d) The Company shall have received the signed opinion of Robert E.
Sawyer, Associate General Counsel of the Buyer, in substantially the form
of Exhibit C hereto.
(e) The shares of Buyer Common Stock covered by the Exchange Offer
Registration Statement, upon issuance and delivery thereof, shall be freely
transferable by a Person that is not an affiliate of the Buyer without
restrictions under any Federal or state securities laws.
(f) The shares of Buyer Common Stock covered by the Registration
Statements shall have been approved for listing on the New York Stock
Exchange subject to notice of issuance.
(g) The Company shall have received a letter, dated the Effective
Date, from the Buyer, stating that it will commence the Exchange Offers one
business day after the Effective Date.
SECTION 7.3. Mutual Conditions. The obligations of the Company to
consummate the Merger and of the Buyer to commence the Exchange Offers are
subject to the satisfaction, on or prior to the Effective Date, of all of the
following further conditions, any one or more may be waived by the Buyer or the
Company, in its sole discretion, but only if and to the extent that such waiver
is mutual:
(a) All filings required to be made prior to the Effective Date with,
and all consents, approvals, permits and authorizations (other than those
which are immaterial) required to be obtained on or prior to the Effective
Date from Governmental Authorities, in connection with the execution and
delivery of this Agreement and the consummation of the transactions
contemplated herein by the Buyer and the Company shall have been made or
obtained, as the case may be; provided, however, that such consents,
approvals, permits and authorizations may be subject to immaterial
conditions.
(b) The Registration Statements shall be effective under the
Securities Act. The Buyer Common Stock covered by the Registration
Statements shall have been registered under any applicable state securities
or blue sky laws and the rules and regulations thereunder. No order
suspending the effectiveness of the Registration Statements or any
post-effective amendments shall have been issued and no proceeding for the
issuance of such an order shall have been initiated or threatened by the
SEC or any "blue sky" or securities authority of any jurisdiction.
(c) The waiting period (and any extension thereof) applicable to the
Exchange under the HSR Act shall have been terminated or shall have
otherwise expired.
(d) No temporary restraining order, preliminary or permanent
injunction or other order issued by any Governmental Authority preventing
the Merger, the commencement of the Exchange or the consummation of the
Closing shall be in effect and there shall not be pending or threatened any
action, suit or proceeding that challenges the validity, legality or
enforceability of this Agreement, the Merger Agreement, the Voting
Agreement or the Enabling Agreement or the transactions contemplated hereby
or thereby, unless such action, suit or proceeding could not reasonably be
expected to have a Material Adverse Effect on the Company's or the Buyer's
interests in such agreements or transactions. If either party invokes this
condition, the party to which any such restraining order, injunction or
other order applies or against which any material action, suit or
proceeding has been filed, shall use its reasonable efforts to have any
such order or injunction vacated and any such action, suit or proceeding
dismissed.
(e) Each counsel required to render an opinion hereunder shall have
been furnished with all such documents, certificates and opinions as such
counsel may reasonably request for the purpose of enabling them to deliver
such legal opinions and in order to evidence the accuracy and completeness
of any of the representations and warranties or statements of the parties
hereto or the fulfillment of any of the conditions contained herein.
(f) Each of the employees of the Company identified on Schedule 7.3(f)
shall have executed and delivered to the Company an employment agreement or
amendment to such employee's existing employment agreement substantially in
the form of Exhibits D-1 through D-4.
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(g) The Credit Agreement shall have been amended or the breach thereof
waived, in either event so that the transactions contemplated hereby shall
not constitute a default thereunder.
ARTICLE VIII.
TERMINATION OF AGREEMENT
SECTION 8.1. Termination. (a) This Agreement may be terminated on or prior
to the Closing Date as follows:
(i) by mutual written consent of the Buyer and the Company; and
(ii) at the election of the Buyer or the Company, if the Effective
Date shall not have occurred on or before March 31, 1996 or the Closing
Date shall not have occurred on or before June 30, 1996, unless the failure
to consummate the Merger or the Exchange Offers, as the case may be, is the
result of a willful breach of this Agreement by the party seeking to
terminate this Agreement.
(b) The termination of this Agreement shall be effectuated by the delivery
by the party terminating this Agreement to the other party of a written notice
of such termination. If this Agreement so terminates, it shall become null and
void and have no further force or effect, except as provided in Section 8.2.
SECTION 8.2. Survival After Termination. If this Agreement is terminated in
accordance with Section 8.1 hereof and the transactions contemplated hereby are
not consummated, this Agreement shall become void and of no further force or
effect, except for the provisions of Sections 6.3 and 6.6(b); and no party
hereto shall have any liability in respect of a termination of this Agreement,
except to the extent that failure to satisfy the conditions of Article VII
results from the intentional or willful violation by such party of this
Agreement or the provisions of any agreement made or to be made pursuant to this
Agreement.
ARTICLE IX.
MISCELLANEOUS
SECTION 9.1. Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any certificate or
instrument delivered pursuant to this Agreement (other than those
representations and warranties affecting the Buyer Common Stock to be delivered
in the Exchange Offers or pursuant to the terms of the Class B Common Stock)
shall survive the Closing Date; provided, that the representations and
warranties of the Company set forth in Sections 4.3(b), (c) and (d) and 4.5
shall survive until 60 days after the delivery to the Buyer of the audited
financial statements for the Company for the fiscal year ending March 31, 1996;
provided, further, that the Buyer shall not be precluded hereby from pursuing
any claim against the Company for any breach of such representation or warranty
of which the Buyer notifies the Company before the expiration of such sixty-day
period. Any claim by the Buyer for any breach of this Agreement by the Company
shall be recourse solely to the Company and not its stockholders, directors or
officers. There shall be no reduction in the number of shares to be issued to
any stockholder in the Merger, Exchange Offers or any of the transactions
contemplated hereby based on any claim made by the Buyer based on an asserted
breach of this Agreement, the Merger Agreement or the Enabling Agreement. This
Section 9.1 shall not limit any covenant or agreement of the parties which by
its terms contemplates performance after the Closing Date.
SECTION 9.2. Law Governing. This Agreement shall be construed and
interpreted according to the laws of the State of New York applicable to
contracts made and to be performed wholly within such state without regard to
principles of choice or conflicts of law.
SECTION 9.3. Binding Effect; Persons Benefiting; No Assignment. This
Agreement shall inure to the benefit of and be binding upon the parties hereto
and the respective successors and assigns of the parties and such persons.
Nothing in this Agreement is intended or shall be construed to confer upon any
entity or person other than the parties hereto and their respective successors
and permitted assigns and, solely with respect to Article III, the stockholders
of the Company, any right, remedy or claim under or by reason of this Agreement
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or any part hereof. Without the prior written consent of the parties hereto,
this Agreement may not be assigned by any of the parties hereto; provided,
however, that the Buyer may assign its rights hereunder without being relieved
of its obligations hereunder to any wholly owned subsidiary of the Buyer without
the consent of the Company.
SECTION 9.4. Amendments. This Agreement may not be amended, altered or
modified except by a written instrument executed by the Buyer and the Company.
SECTION 9.5. Interpretation. When a reference is made in this Agreement to
a Section, Exhibit or Schedule, such reference shall be to a Section of, or an
Exhibit or a Schedule to, this Agreement unless otherwise indicated. The table
of contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation".
SECTION 9.6. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original and each of which shall constitute one
and the same instrument.
SECTION 9.7. Entire Agreement; Schedules. This Agreement, including the
Schedules and Exhibits hereto and any documents executed by the parties
concurrently herewith or pursuant thereto, and the Confidentiality Agreement,
constitute the entire understanding and agreement of the parties hereto with
respect to the subject matter hereof and supersede all other prior agreements
and understandings, written or oral, between the parties with respect to such
subject matter.
SECTION 9.8. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given (a) when delivered by hand, (b) when sent by telecopier (with receipt
confirmed), provided a copy is also sent by registered mail, return receipt
requested, or (c) the day after the day sent by reputable next-day air courier,
in each case, addressed as follows (or to such other address as a party may
designate by notice to the other):
(a) If to Buyer:
Occidental Petroleum Corporation
10889 Wilshire Boulevard
Los Angeles, California 90024
Attention: Stephen I. Chazen
Telecopier: (310) 443-8690
with copies to:
Occidental Petroleum Corporation
10889 Wilshire Boulevard
Los Angeles, California 90024
Attention: Donald P. deBrier
General Counsel
Telecopier: (310) 443-6333
(b) If to the Company:
INDSPEC Holding Corporation
411 Seventh Avenue, Suite 300
Pittsburgh, Pennsylvania 15219
Attention: William S. Lee
Telecopier: (412) 765-0439
with copies to:
Schulte Roth & Zabel
900 Third Avenue
New York, New York 10022
Attention: Andre Weiss, Esq.
Telecopier: (212) 593-5955
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<PAGE> 144
SECTION 9.9. Public Announcements. At all times at or before the Closing,
the Company and the Buyer will each consult with and provide an advance copy to
the other before issuing or making any reports, statements, or releases to the
public with respect to this Agreement or the transactions contemplated hereby.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
OCCIDENTAL PETROLEUM CORPORATION
By: /s/ STEPHEN I. CHAZEN
------------------------------------
Name: Stephen I. Chazen
Title: Executive Vice President-
Corporate Development
INDSPEC HOLDING CORPORATION
By: /s/ FRANK M. SPINOLA
------------------------------------
Name: Frank M. Spinola
Title: President
I-28
<PAGE> 145
ANNEX A
<TABLE>
<S> <C>
Castle Harlan Partners II, L.P...................................................... 26,792
Frank M. Spinola.................................................................... 1,920
Durmot Dunphy....................................................................... 556
John Herrmann....................................................................... 111
Richard Smith....................................................................... 61
Jeffrey Siegal...................................................................... 31
Howard Weiss........................................................................ 12
Justin Wender....................................................................... 7
Sylvia Rosen........................................................................ 6
------
Total..................................................................... 29,496
======
</TABLE>
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<PAGE> 146
ANNEX B
CONDITIONS TO THE EXCHANGE
1. The conditions set forth in Sections 7.1 and 7.3 shall have been
satisfied on or prior to the Closing Date, except that, for purposes of the
conditions to consummation of the Exchange, each reference therein to the
Commencement Date or the Effective Date shall be deemed to be a reference to the
Closing Date.
2. The Buyer shall not be required to consummate the Exchange if during the
period beginning on the first day of the Valuation Period and ending on the
Closing Date there shall have occurred (i) an outbreak or escalation of
hostilities involving the United States or (ii) any material adverse change in
the financial markets of the United States, including any general suspension of
trading on the New York Stock Exchange or any declaration of any banking
moratorium by any of the federal, California or New York Government Authorities,
the effect of either clause (i) or (ii) of which is to make it, in the
reasonable good faith judgment of the Buyer, impracticable to determine the
Buyer Common Stock Value on a fair basis because of general disruption of
trading in equity securities listed on the New York Stock Exchange. In such
event, the Valuation Period shall be suspended and shall recommence the day
after such event ceases to have the effects described in the preceding sentence.
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<PAGE> 147
ANNEX II
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MERGER AGREEMENT
DATED AS OF NOVEMBER 10, 1995
BY AND BETWEEN
ROUNDTABLE CORP.
AND
INDSPEC HOLDING CORPORATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 148
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
RECITALS................................................................................ II-1
ARTICLE I. DEFINITIONS................................................................. II-1
SECTION 1.1. Definitions............................................................ II-1
ARTICLE II. THE MERGER................................................................. II-2
SECTION 2.1. Merger................................................................. II-2
SECTION 2.2. Effective Time......................................................... II-2
SECTION 2.3. Certificate of Incorporation........................................... II-2
SECTION 2.4. By-Laws................................................................ II-2
SECTION 2.5. Officers and Directors................................................. II-2
SECTION 2.6. Effect of Merger....................................................... II-3
ARTICLE III. CONVERSION................................................................ II-3
SECTION 3.1. Conversion............................................................. II-3
SECTION 3.2. No Further Ownership Rights in Common Stock or Roundtable Common
Stock.................................................................. II-4
ARTICLE IV. DISSENTING STOCKHOLDERS.................................................... II-4
SECTION 4.1. Election............................................................... II-4
SECTION 4.2. Payment................................................................ II-4
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF OLD INDSPEC............................... II-5
SECTION 5.1. Incorporation; Qualification and Corporate Authority................... II-5
SECTION 5.2. Binding Obligation..................................................... II-5
SECTION 5.3. No Defaults or Conflicts............................................... II-5
SECTION 5.4. No Authorization or Consents Required.................................. II-5
ARTICLE VI. REPRESENTATIONS AND WARRANTIES OF ROUNDTABLE............................... II-6
SECTION 6.1. Incorporation; Qualification and Corporate Authority................... II-6
SECTION 6.2. Binding Obligation..................................................... II-6
SECTION 6.3. No Defaults or Conflicts............................................... II-6
SECTION 6.4. No Authorization or Consents Required.................................. II-6
SECTION 6.5. Tax Matters............................................................ II-6
ARTICLE VII. COVENANTS................................................................. II-7
SECTION 7.1. Further Assurances..................................................... II-7
SECTION 7.2. Submission of Merger to Stockholders................................... II-7
SECTION 7.3. Tax Treatment of Merger................................................ II-7
ARTICLE VIII. CONDITIONS PRECEDENT TO THE MERGER....................................... II-7
SECTION 8.1. Conditions Precedent of Roundtable..................................... II-7
SECTION 8.2. Mutual Conditions...................................................... II-7
SECTION 8.3. Conditions Precedent of the Old INDSPEC................................ II-8
ARTICLE IX. TERMINATION OF AGREEMENT................................................... II-8
SECTION 9.1. Termination............................................................ II-8
</TABLE>
II-i
<PAGE> 149
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
ARTICLE X. MISCELLANEOUS............................................................... II-8
SECTION 10.1. Expenses............................................................... II-8
SECTION 10.2. Law Governing.......................................................... II-8
SECTION 10.3. Binding Effect; Persons Benefiting; No Assignment...................... II-8
SECTION 10.4. Third Party Beneficiary................................................ II-8
SECTION 10.5. Amendments............................................................. II-9
SECTION 10.6. Interpretation......................................................... II-9
SECTION 10.7. Counterparts........................................................... II-9
SECTION 10.8. Entire Agreement; Schedules............................................ II-9
SECTION 10.9. Notices................................................................ II-9
</TABLE>
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<PAGE> 150
MERGER AGREEMENT
MERGER AGREEMENT, dated as of November 10, 1995 (this "Agreement"), by and
between Roundtable Corp., a Delaware corporation ("Roundtable") and INDSPEC
Holding Corporation, a Delaware corporation ("Old INDSPEC").
RECITALS:
WHEREAS, subject to the terms and conditions of this Agreement, each of the
boards of directors of Roundtable and Old INDSPEC have approved the merger (the
"Merger") of Roundtable into Old INDSPEC, on the terms set forth in this
Agreement;
WHEREAS, Old INDSPEC and Occidental Petroleum Corporation, a Delaware
corporation (the "Buyer"), have entered into an Agreement and Plan of Share
Exchange (the "Exchange Agreement") pursuant to which, promptly following the
Merger, the Buyer shall commence exchange offers providing for the exchange of
certain shares of INDSPEC Common Stock (as defined below) to be outstanding upon
consummation of the Merger for shares of common stock, par value $0.20 per
share, of the Buyer; and
WHEREAS, in furtherance of the consummation of the Merger and the
transactions contemplated herein, the parties hereto desire to enter into this
Agreement;
NOW, THEREFORE, in consideration of and premised upon the various
representations, warranties, covenants and other agreements and undertakings of
Roundtable and Old INDSPEC contained in this Agreement, and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Old INDSPEC and Roundtable agree as follows:
ARTICLE I.
DEFINITIONS
SECTION 1.1. Definitions. (a) For all purposes in this Agreement, the
following terms shall have the respective meanings set forth in this Section 1.1
(such definitions to be equally applicable to both the singular and plural forms
of the terms herein defined):
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administration functions of or
pertaining to government, including the SEC or any other government
authority, agency, department, board, commission or instrumentality of the
United States, any foreign government, any State of the United States or
any political subdivision thereof, and any court, tribunal or arbitrator(s)
of competent jurisdiction, and any governmental or non-governmental
self-regulatory organization, agency or authority.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder.
"Taxes" shall mean all Federal, state, local and foreign taxes, and
other governmental assessments of a similar nature (whether imposed
directly or through withholding), including any interest, addition to tax,
or penalties applicable thereto.
"Tax Returns" shall mean all Federal, state, local and foreign tax
returns, declarations, statements, reports, schedules, forms and
information returns (including any amendments thereto).
<PAGE> 151
(b) The following terms shall have the meaning specified in the indicated
section of this Agreement:
<TABLE>
<CAPTION>
TERM SECTION
- ---- -------
<S> <C>
Agreement....................... Recitals.
Buyer........................... Recitals.
Class A Common Stock............ Section 3.1.
Class B Common Stock............ Section 3.1.
Common Stock.................... Section 3.1.
Constituent Corporations........ Section 2.1.
DGCL............................ Section 2.1.
Dissenting Stockholder.......... Section 4.1.
Effective Date.................. Section 2.2.
Effective Time.................. Section 2.2.
Exchange Agreement.............. Recitals.
<CAPTION>
TERM SECTION
- ---- -------
<S> <C>
INDSPEC......................... Section 2.1.
INDSPEC Common Stock............ Section 3.1.
Material Adverse Effect......... Section 5.1.
Merger.......................... Recitals.
Old INDSPEC..................... Recitals.
Recapitalization................ Section 7.3.
Roundtable Common Stock......... Section 3.1.
Roundtable...................... Recitals.
Surviving Corporation........... Section 2.1.
Surviving Corporation By-laws... Section 2.4.
Surviving Corporation
Certificate................... Section 2.3.
</TABLE>
(c) All references herein to dollars or "$" shall be to United States
dollars.
(d) All terms used but not defined herein shall have the meaning ascribed
to them in the Exchange Agreement.
ARTICLE II.
THE MERGER
SECTION 2.1. Merger. Upon the terms and subject to the conditions set forth
in this Agreement and in accordance with the Delaware General Corporation Law
(the "DGCL"), at the Effective Time, Roundtable shall be merged with and into
Old INDSPEC, whereupon Old INDSPEC shall continue as the surviving corporation
(referred to herein as "INDSPEC" or the "Surviving Corporation") and the
separate corporate existence of Roundtable shall cease. Roundtable and Old
INDSPEC are sometimes referred to herein, collectively, as the "Constituent
Corporations."
SECTION 2.2. Effective Time. (a) The Merger shall be effective when a
properly executed certificate of merger (together with any other documents,
certificates and instruments required by law to effectuate and consummate the
Merger) shall be filed with the Secretary of State of the State of Delaware (or
at such other time as shall be specified in such certificate of merger), which
filing shall be made as soon as practicable after satisfaction of the conditions
set forth in Article VIII.
(b) When used herein, the term "Effective Time" shall mean the date and
time at which the Merger becomes effective and the term "Effective Date" shall
mean the date upon which the Effective Time occurs.
SECTION 2.3. Certificate of Incorporation. The Certificate of Incorporation
of Old INDSPEC shall be amended and restated as set forth in Exhibit A and shall
be the Certificate of Incorporation of the Surviving Corporation (the "Surviving
Corporation Certificate"), unless and until amended as provided by the Surviving
Corporation Certificate or by law.
SECTION 2.4. By-Laws. The By-Laws of Old INDSPEC shall be amended and
restated as set forth in Exhibit B and shall be the By-laws of the Surviving
Corporation (the "Surviving Corporation By-laws") unless and until altered,
amended or repealed as provided by law, the Surviving Corporation Certificate or
the Surviving Corporation By-laws.
SECTION 2.5. Officers and Directors. The officers of Old INDSPEC
immediately prior to the Effective Time shall be the officers of the Surviving
Corporation until their successors shall have been duly elected and qualified,
or as otherwise provided in the Surviving Corporation By-laws. The directors of
the Surviving Corporation shall be Messrs. Spinola, Danner and Scorsone, in
respect of the Class A Shares and Messrs. Castle, Dunphy and Siegal, in respect
of the Class B Shares, until their successors shall have been
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<PAGE> 152
duly elected and qualified, or as otherwise provided in the Surviving
Corporation Certificate, the Surviving Corporation By-laws or as otherwise
provided by applicable law.
SECTION 2.6. Effect of Merger. (a) At the Effective Time, the Merger shall
have the effects set forth in Section 259 of the DGCL. Without limiting the
generality of the foregoing, and subject thereto: (i) the Surviving Corporation
shall possess all the rights, privileges, powers and franchises, of a public and
private nature, and shall be subject to all the restrictions, disabilities and
duties of each of the Constituent Corporations; (ii) all property, real,
personal and mixed, and all debts due to either Constituent Corporation on
whatever account, including all choses in action and other things belonging to
the Constituent Corporations, shall be vested in the Surviving Corporation;
(iii) all property, rights, privileges, powers and franchises, and every other
interest of each of the Constituent Corporations shall be, from and after the
Effective Date, the property of the Surviving Corporation and the title to any
real estate vested by deed or otherwise in the Constituent Corporations shall
not revert or be impaired in any way by this Agreement or the Merger provided
for herein, but all rights of creditors and all liens upon any property of
either Constituent Corporation shall be preserved unimpaired, and all debts,
liabilities and duties of the Constituent Corporations shall, from and after the
Effective Time, attach to and become the debts, liabilities and duties of the
Surviving Corporation, and may be enforced against the Surviving Corporation to
the same extent as if said debts, liabilities and duties had been incurred or
contracted by the Surviving Corporation; and (iv) all transfers vesting in the
Surviving Corporation referred to herein shall be deemed to occur by operation
of law and no consent or approval of any other person shall be required in
connection with any such transfer or vesting unless such consent or approval is
specifically required in the event of merger or consolidation by law or express
provision of any contract, agreement, decree, order or other instrument to which
either or both of the Constituent Corporations is a party or is bound.
(b) The Surviving Corporation shall assume and be liable for all the
liabilities, obligations and penalties of each of the Constituent Corporations.
No liability or obligation due or to become due, claim or demand for any cause
existing against either Constituent Corporation, or any stockholder, officer or
director thereof, shall be released or impaired by the Merger. No action or
proceeding, whether civil or criminal, then pending by or against either
Constituent Corporation, or any stockholder, officer or director thereof, shall
abate or be discontinued by the Merger, but may be enforced, prosecuted, settled
or compromised as if the Merger had not occurred, or the Surviving Corporation
may be substituted in such action or special proceeding in place of either
Constituent Corporation.
(c) All corporate acts, plans, policies, approvals and authorizations of
the Constituent Corporations and their respective Boards of Directors,
committees appointed by such Boards of Directors and their officers and agents,
which were valid and effective immediately prior to the Effective Time, shall be
taken for all purposes as the acts, plans, policies, approvals and
authorizations of the Surviving Corporation and shall be as effective and
binding thereon as the same were with respect to Old INDSPEC and Roundtable.
(d) The employees of Old INDSPEC and the subsidiaries shall become the
employees of the Surviving Corporation and its direct and indirect subsidiaries
and shall continue to be entitled to the same rights and benefits which they
enjoyed as employees of Old INDSPEC and the subsidiaries.
ARTICLE III.
CONVERSION
SECTION 3.1. Conversion. The manner and basis of converting the shares of
common stock of each of the Constituent Corporations, and the consideration that
the holders of such shares shall receive are as follows:
(a) Subject to Section 4.1, at the Effective Time, by virtue of the
Merger and without any action on the part of the holder thereof, each share
of common stock, par value $.01 per share, of Old INDSPEC (the "Common
Stock"), issued and outstanding immediately prior to the Effective Time
(other than those shares held by Roundtable) shall be converted into the
right to receive one share of Class A Common Stock, par value $.01 per
share, of INDSPEC ("Class A Common Stock") in accordance with the
provisions of this Agreement.
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<PAGE> 153
(b) Subject to Section 4.1, at the Effective Time, by virtue of the
Merger and without any action on the part of the holder thereof, each share
of common stock, par value $.01 per share, of Roundtable (the "Roundtable
Common Stock"), issued and outstanding immediately prior to the Effective
Time shall be converted into the right to receive one share of Class B
Common Stock, par value $.01 per share, of INDSPEC ("Class B Common Stock"
and together with the Class A Common Stock, the "INDSPEC Common Stock"), in
accordance with the provisions of this Agreement.
(c) Subject to Section 4.1, following the Effective Time, all
certificates or other instruments representing shares of Common Stock,
other than those shares held by Roundtable, issued and outstanding
immediately prior to the Effective Time shall thereafter evidence, without
further action, Class A Common Stock. At the Effective Time, shares of
Common Stock held by Roundtable shall be cancelled and retired and cease to
exist. At the Effective Time, each certificate or other instruments
representing shares of Roundtable Common Stock issued and outstanding
immediately prior to the Effective Time shall represent only the right to
receive Class B Common Stock.
(d) Each share of Common Stock which shall be held in the treasury of
Old INDSPEC, at the Effective Time, shall, by virtue of the Merger and
without further action, be converted into one share of Class A Common
Stock.
SECTION 3.2. No Further Ownership Rights in Common Stock or Roundtable
Common Stock. If any certificates representing shares of Roundtable Common Stock
shall not have been surrendered prior to two (2) years after the Effective Date
(or immediately prior to such earlier date on which any shares of Class B Common
Stock to be exchanged for any such certificate would otherwise escheat to or
become the property of any Governmental Authority), any such cash, shares,
dividends or distributions payable in respect thereof shall, to the extent
permitted by applicable law, become the property of the Surviving Corporation,
free and clear of all claims or interest of any person previously entitled
thereto.
ARTICLE IV.
DISSENTING STOCKHOLDERS
SECTION 4.1. Election. Any shares of Common Stock as to which the holder
thereof shall have properly demanded appraisal in accordance with the
requirements of Section 262 of the DGCL (any holder duly making such demand is
referred to herein as a "Dissenting Stockholder") shall not be converted into
the right to receive shares of Class A Common Stock or Class B Common Stock,
unless and until such holder shall have failed to perfect, or shall have
effectively withdrawn or lost, the right to appraisal of and payment for such
shares of Common Stock under the DGCL. In the event that a notice of exercise of
appraisal rights under Section 262 of the DGCL was not required prior to the
Effective Time, at such time as a holder of shares of Common Stock subsequently
properly demands appraisal rights, certificates for shares of Common Stock as to
which such appraisal rights are properly demanded shall thereupon cease to
represent the right to receive the shares of Class A Common Stock or Class B
Common Stock and shall represent only the right to receive payment for such
shares under Section 262 of the DGCL.
SECTION 4.2. Payment. Each Dissenting Stockholder who becomes entitled,
pursuant to the provisions of Section 262 of the DGCL, to payment of the value
of its shares of Common Stock shall receive payment therefor from the Surviving
Corporation (but only after the value thereof shall have been agreed upon or
finally determined pursuant to such provisions). If a Dissenting Stockholder
fails to perfect, or effectively withdraws or loses the right to receive payment
for such shares of Common Stock, pursuant to Section 262 of the DGCL, each share
of Common Stock held by such Dissenting Stockholder shall be converted into one
share of Class A Common Stock as provided in Section 3.1.
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<PAGE> 154
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF OLD INDSPEC
Old INDSPEC represents and warrants to and agrees with Roundtable that:
Section 5.1. Incorporation; Qualification and Corporate Authority. Old
INDSPEC has been duly incorporated and is validly existing and in good standing
under the laws of the State of Delaware with all requisite corporate power and
authority to conduct its business as presently conducted and to enter into this
Agreement and perform its obligations hereunder. Old INDSPEC is duly qualified
to transact business as a foreign corporation and in good standing in each other
jurisdiction in which it owns or leases property of a nature, or transacts
business of a type, that would make such qualification necessary, except to the
extent that the failure to so qualify or be in good standing could not singly or
in the aggregate, reasonably be expected to have a material adverse effect on
the assets, business, condition (financial or otherwise) or results of
operations of Old INDSPEC and its Subsidiaries considered as one enterprise (a
"Material Adverse Effect").
SECTION 5.2. Binding Obligation. This Agreement has been duly authorized,
executed and delivered by Old INDSPEC and, assuming this Agreement constitutes a
valid and binding obligation of the other parties hereto, constitutes the legal,
valid and binding obligation of Old INDSPEC, enforceable against Old INDSPEC in
accordance with its terms, except to the extent that the enforceability thereof
may be limited by: (i) applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or similar laws from time to time in effect affecting
generally the enforcement of creditors' rights and remedies; and (ii) general
principles of equity, including, without limitation, principles of
reasonableness, good faith and fair dealing (regardless of whether enforcement
is sought in equity or at law).
SECTION 5.3. No Defaults or Conflicts. The execution and delivery of this
Agreement by Old INDSPEC and performance by Old INDSPEC of its obligations
hereunder (i) have been duly authorized by Old INDSPEC (other than Stockholder
Approval), (ii) do not and, at the Effective Time, will not, after notice or
lapse of time or both, result in any violation of the charter, by-laws or other
organizational document of Old INDSPEC or any Subsidiary; and (iii) at the
Effective Time, will not (x) conflict with, or result in a breach of any of the
terms or provisions of, or result in the modification or cancellation of, or
give rise to any right of termination, acceleration, prepayment or redemption in
respect of, or constitute a default under: (A) (except for such conflicts,
breaches or defaults that could not, singly or in the aggregate, reasonably be
expected to have a Material Adverse Effect) any indenture, mortgage or loan
agreement or any other agreement or instrument to which Old INDSPEC or any
Subsidiary is a party or by which they may be bound or to which any of their
respective properties may be subject, assuming that the condition set forth in
Section 7.3(g) of the Exchange Agreement will have been satisfied on or before
the Closing Date; or (B) any existing applicable law, rule, regulation,
judgment, order or decree of any Governmental Authority having jurisdiction over
Old INDSPEC or any Subsidiary or any of their respective properties, other than
such consents, approvals, authorizations, filings or notices as are set forth in
Schedule 5.4 and immaterial filings, authorizations, consents or approvals or
(y) result in the creation or imposition of any lien, charge or encumbrance upon
any property or assets of Old INDSPEC or any Subsidiary (except for such
conflicts, breaches or defaults or liens, charges or encumbrances that could
not, singly or in the aggregate have a Material Adverse Effect).
SECTION 5.4. No Authorization or Consents Required. Other than as listed in
Schedule 5.4, as of the Effective Date, no consent, authorization or approval or
other action by, and no notice to or filing with, any Governmental Authority or
other person (except for immaterial consents, authorizations, approvals,
actions, notices or filings) will be required to be obtained or made by Old
INDSPEC in connection with the due execution and delivery by Old INDSPEC of this
Agreement and the consummation by Old INDSPEC of the transactions contemplated
hereby.
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<PAGE> 155
ARTICLE VI.
REPRESENTATIONS AND WARRANTIES OF ROUNDTABLE
Roundtable represents and warrants to Old INDSPEC that:
SECTION 6.1. Incorporation; Qualification and Corporate
Authority. Roundtable has been duly incorporated and is validly existing and in
good standing under the laws of Delaware, with all requisite corporate power and
authority to enter into this Agreement and perform its obligations hereunder.
Roundtable has engaged in no business prior to the Merger and has been formed
solely for the purpose of engaging in the Merger. Roundtable has no assets
(other than the amounts used to capitalize Roundtable), liabilities, rights or
obligations except pursuant to this Agreement. Roundtable is not a party to any
agreement other than this Agreement and the Voting Agreement dated the date
hereof by and among Roundtable, the Company, Castle Harlan Partners II, L.P. and
the other parties named therein.
SECTION 6.2. Binding Obligation. This Agreement has been duly authorized,
executed and delivered by Roundtable and, assuming this Agreement constitutes a
valid and binding obligation of the other parties hereto, constitutes the legal,
valid and binding obligation of Roundtable, enforceable against Roundtable in
accordance with its terms, except to the extent that the enforceability thereof
may be limited by: (i) applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or similar laws from time to time in effect affecting
generally the enforcement of creditors' rights and remedies; and (ii) general
principles of equity, including, without limitation, principles of
reasonableness, good faith and fair dealing (regardless of whether enforcement
is sought in equity or at law).
SECTION 6.3. No Defaults or Conflicts. The execution and delivery of this
Agreement by Roundtable and performance by Roundtable of its obligations
hereunder have been duly authorized by all necessary corporate action on the
part of Roundtable and: (i) do not and, at the Effective Time, will not result
in any violation of the charter or by-laws or other constituent documents of
Roundtable; and (ii) at the Effective Time, will not conflict with, or result in
a breach of any of the terms or provisions of, or constitute a default under, or
result in the creation or imposition of any lien, charge or encumbrance upon any
property or assets of Roundtable (except for such conflicts, breaches or
defaults or liens, charges or encumbrances that would not adversely affect the
consummation of the Merger) under: (A) any indenture, mortgage or loan or any
other agreement or instrument to which Roundtable is a party or by which it may
be bound or to which any of its properties may be subject; or (B) any existing
applicable law, rule, regulation, judgment, order or decree of any Governmental
Authority having jurisdiction over Roundtable or any of its properties, other
than: (x) the consents, approvals and notices which are set forth in Schedule
6.4, and (y) filings, authorizations, consents or approvals the failure to make
or obtain which would not adversely affect the consummation of the Merger.
SECTION 6.4. No Authorization or Consents Required. Other than as listed in
Schedule 6.4, as of the Effective Date, no authorization or approval or other
action by, and no notice to or filing with, any Governmental Authority will be
required to be obtained or made by Roundtable in connection with the due
execution and delivery by Roundtable of this Agreement and the consummation by
Roundtable of the Merger as contemplated hereby.
SECTION 6.5. Tax Matters.
(a) Roundtable has timely filed or will file or cause to be timely filed
all Tax Returns required by applicable law to be filed by it prior to or as of
the Effective Time. All such Tax Returns and amendments thereto are or will be
true, complete and correct.
(b) Roundtable has paid within the time and manner prescribed by law, or
where payment is not yet due, has established on or before the Effective Time,
an adequate accrual for the payment of all Taxes due with respect to any period
ending prior to or as of the Effective Time.
(c) There are no liens for Taxes upon the assets of Roundtable (other than
liens for Taxes that are not yet due and payable).
(d) There are no actions, suits, or proceedings pending against Roundtable
in respect of Taxes.
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<PAGE> 156
ARTICLE VII.
COVENANTS
From the date of this Agreement up to and including the Effective Time
(unless this Agreement is terminated pursuant to Article IX), the parties hereto
covenant and agree as follows:
SECTION 7.1. Further Assurances. Each of the parties hereto shall execute
such documents and other papers and perform such further acts as may be
reasonably required to carry out the provisions hereof and the transactions
contemplated hereby. Each such party shall, on or prior to the Effective Time,
use its best efforts to fulfill or obtain the fulfillment of the conditions
precedent to the consummation of the Merger, including the execution and
delivery of any documents, certificates, instruments or other papers that are
reasonably required for the consummation of the Merger.
SECTION 7.2. Submission of Merger to Stockholders. Roundtable shall take
all action necessary in accordance with applicable law and its Certificate of
Incorporation and By-laws to obtain the approval of its stockholders to the
Merger. Old INDSPEC shall take all action necessary in accordance with
applicable law and its Certificate of Incorporation and By-Laws to convene a
meeting of its stockholders to consider and vote upon the approval of the
Merger, provided, however, that Old INDSPEC shall not be obligated to convene a
stockholders' meeting if it obtains the written consent to the Merger of holders
of at least 90% of the outstanding Common Stock.
SECTION 7.3. Tax Treatment of Merger. The Merger and the transactions
contemplated by Articles II and III hereof have been structured to constitute a
recapitalization of Old INDSPEC within the meaning of Section 368(a)(1)(E) of
the Internal Revenue Code of 1986, as amended (a "Recapitalization"). The
parties hereto shall prepare or cause to be prepared all Tax Returns in
accordance with the treatment of the Merger and such transactions as a
Recapitalization and shall not take any action that is inconsistent with such
treatment.
ARTICLE VIII.
CONDITIONS PRECEDENT TO THE MERGER
SECTION 8.1. Conditions Precedent of Roundtable. The obligation of
Roundtable to consummate the Merger is subject to the satisfaction, at or prior
to the Effective Time, of all of the following conditions, any one or more of
which may be waived by Roundtable:
The representations and warranties of Old INDSPEC shall be accurate in all
material respects, as of their respective dates and as of the Effective Time,
and the Company shall have complied with all agreements and satisfied all
conditions set forth herein on its part to be performed or satisfied at or prior
to the Effective Time. Roundtable shall have received at the Effective Time: (i)
a certificate, dated as of the Effective Date, from the President of Old INDSPEC
on behalf of Old INDSPEC, in such individual's capacity as an officer of Old
INDSPEC and not as an individual, to the effect that the representations and
warranties are true and correct in all material respects, as of their respective
dates; and (ii) a certificate, dated as of the Effective Date, from the
Secretary of Old INDSPEC certifying as to the accuracy and completeness of the
resolutions, consents and authorizations with respect to the execution and
delivery of this Agreement and the transactions contemplated hereby.
SECTION 8.2. Mutual Conditions. The obligation of Roundtable and Old
INDSPEC to consummate the Merger is subject to the satisfaction, at or prior to
the Effective Time, of all of the following further conditions:
(a) The conditions set forth in Sections 7.2 and 7.3 of the Exchange
Agreement shall have been satisfied.
(b) Old INDSPEC shall have received a certificate, dated as of the
Effective Date, from the President of the Buyer, in such individual's
capacity as an officer of the Buyer, and not as an individual, to
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the effect that the conditions set forth in Sections 7.2 and 7.3 of the
Exchange Agreement have been satisfied.
(c) Roundtable shall have received a certificate, dated as of the
Effective Date, from the President of Old INDSPEC, in such individual's
capacity as an officer of Old INDSPEC, and not as an individual, to the
effect that the conditions set forth in Sections 7.2 and 7.3 of the
Exchange Agreement have been satisfied.
SECTION 8.3. Conditions Precedent of the Old INDSPEC. The obligation of Old
INDSPEC to consummate the Merger is subject to the satisfaction, at or prior to
the Effective Time, of all of the following conditions, any one or more of which
may be waived by Old INDSPEC:
The representations and warranties of Roundtable shall be accurate in all
material respects, as of their respective dates and as of the Effective Time,
and Roundtable shall have complied with all agreements and satisfied all
conditions set forth herein on its part to be performed or satisfied at or prior
to the Effective Time. Old INDSPEC shall have received at the Effective Time:
(i) a certificate, dated as of the Effective Date, from the Chairman of the
Board of Directors, President or Chief Operating Officer of Roundtable, in such
individual's capacity as a director or officer of Roundtable, and not as an
individual, to the effect that the representations and warranties are true and
correct in all material respects, as of their respective dates; and (ii) a
certificate, dated as of the Effective Date, from the Secretary or Assistant
Secretary of Roundtable, certifying as to the accuracy and completeness of the
attached certificate of incorporation and by-laws and resolutions, consents and
authorizations with respect to the execution and delivery of this Agreement and
the transactions contemplated hereby.
ARTICLE IX.
TERMINATION OF AGREEMENT
SECTION 9.1. Termination. This Agreement may be terminated on or prior to
the Effective Time by either party, but only if the Exchange Agreement is
terminated.
ARTICLE X.
MISCELLANEOUS
SECTION 10.1. Expenses. Whether or not the Exchange is consummated, INDSPEC
shall bear the direct expenses of Roundtable incurred in connection with the
negotiation and preparation of this Agreement and the consummation of the
transactions contemplated hereby, including, without limitation, legal fees and
disbursements.
SECTION 10.2. Law Governing. This Agreement shall be governed by the laws
of the State of Delaware.
SECTION 10.3. Binding Effect; Persons Benefiting; No Assignment. This
Agreement shall inure to the benefit of and be binding upon the parties hereto,
and the respective successors and assigns of the parties and such persons.
Except as set forth in Section 10.4, nothing in this Agreement is intended or
shall be construed to confer upon any entity or person other than the parties
hereto and their respective successors and permitted assigns any right, remedy
or claim under or by reason of this Agreement or any part hereof. Without the
prior written consent of the parties hereto, this Agreement may not be assigned
by any of the parties hereto.
SECTION 10.4. Third Party Beneficiary. The Buyer shall be an intended third
party beneficiary of this Agreement and shall have the right to enforce this
Agreement directly in a court of law or equity or both to protect its rights
hereunder. Without limiting the generality of the foregoing, it is the intention
of the parties hereto that the provisions of this Agreement, including the
representations and warranties of Roundtable included in Article VI, are made
for the benefit of the Buyer and to induce the Buyer to commence the Exchange
Offers and the other transactions contemplated by the Exchange Agreement.
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SECTION 10.5. Amendments. This Agreement may not be amended, altered or
modified except by a written instrument executed by Roundtable and Old INDSPEC.
SECTION 10.6. Interpretation. When a reference is made in this Agreement to
a Section or Schedule, such reference shall be to a Section of, or a Schedule
to, this Agreement unless otherwise indicated. The table of contents and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. Whenever
the words "include", "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation".
SECTION 10.7. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original and each of which shall constitute one
and the same instrument.
SECTION 10.8. Entire Agreement; Schedules. This Agreement, including the
Schedules, certificates and lists referred to herein, and any documents executed
by the parties simultaneously herewith or pursuant thereto, constitute the
entire understanding and agreement of the parties hereto with respect to the
subject matter hereof and supersedes all other prior agreements and
understandings, written or oral, between the parties with respect to such
subject matter.
SECTION 10.9. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered by hand, or when sent by telex or telecopier (with
receipt confirmed), provided a copy is also sent by registered mail, return
receipt requested, or by courier addressed as follows (or to such other address
as a party may designate by notice to the other):
(a) If to Roundtable:
Mr. Jeffrey M. Siegal
c/o Castle Harlan Partners II, L.P.
150 East 58th Street
New York, New York 10155
Telecopier: (212) 207-8042
with copies to:
Schulte Roth & Zabel
900 Third Avenue
New York, New York 10022
Attention: Andre Weiss, Esq.
Telecopier: (212) 593-5955
(b) If to Old INDSPEC:
INDSPEC Holding Corporation
411 Seventh Avenue, Suite 300
Pittsburgh, Pennsylvania 15219
Attention: William S. Lee
Telecopier: (412) 765-0439
with copies to:
Eckert Seamans Cherin & Mellott
600 Grant Street, 42nd Floor
Pittsburgh, Pennsylvania
Attention: John J. Kearns, Esq.
Telecopier: (412) 566-6099
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
ROUNDTABLE CORP.
By: /s/ JEFFREY M. SIEGAL
----------------------------------
Name: Jeffrey M. Siegal
Title: President
INDSPEC HOLDING CORPORATION
By: /s/ FRANK M. SPINOLA
----------------------------------
Name: Frank M. Spinola
Title: President
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<PAGE> 160
ANNEX III
FORM OF AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
INDSPEC HOLDING CORPORATION
ARTICLE I.
The name of the corporation is INDSPEC Holding Corporation (hereinafter the
"Corporation").
ARTICLE II.
The address of its registered office in the State of Delaware is 1209
Orange Street, in the City of Wilmington, County of New Castle. The name of the
Corporation's registered agent is The Corporation Trust Company.
ARTICLE III.
Unless otherwise specified in this Certificate of Incorporation, in any
instance in which this Certificate of Incorporation requires that a mathematical
calculation be performed, or makes reference to a fraction, the result obtained
after performing such calculation, and any such fraction, shall be expressed as
a decimal and rounded to the nearer 1/100th, with .5/100 rounded upward to
1/100.
As used herein, the following terms have the following meanings:
"Affiliate" means, with respect to any specified Person, (i) any other
Person directly or indirectly controlling or controlled by, or under direct or
indirect common control with, such specified Person or (ii) any officer,
director or controlling shareholder of such other Person. For purposes of this
definition, the term "control" means the power to direct the management and
policies of a Person, directly or through one or more intermediaries, whether
through the ownership of voting securities, by contract, or otherwise.
"Board of Directors" means the board of directors of the Corporation.
"Business Day" means any day other than a Saturday or Sunday or a day on
which banking institutions in the State of New York are authorized or obligated
by law or executive order to close.
"Castle Harlan" means Castle Harlan Partners II, L.P., a Delaware limited
partnership, and its Affiliates.
"Class A Common Stock" shall have the meaning set forth in Article V,
Section 1 hereof.
"Class A Director" shall have the meaning set forth in Article VII,
paragraph (b) hereof.
"Class B Common Stock" shall have the meaning set forth in Article V,
Section 1 hereof.
"Class B Director" shall have the meaning set forth in Article VII,
paragraph (b) hereof.
"Closing Date" shall have the meaning set forth in the Exchange Agreement.
"Closing Price" with respect to any security on any Trading Day means the
closing sale price, regular way, on such day or, in case no such sale takes
place on such day, the average of the reported closing bid and asked prices,
regular way, in each case, on the New York Stock Exchange, or if not so
available, in such manner as furnished by any New York Stock Exchange member
firm selected from time to time by the Board of Directors for that purpose.
"Common Stock" means the Class A Common Stock and the Class B Common Stock.
"Corporation Accounting Practices" means the principles, methods and
practices used by the Corporation and its consolidated subsidiaries in the
preparation of financial statements of the Corporation and its consolidated
subsidiaries as of, and for the twelve months ended, September 30, 1995.
<PAGE> 161
"Conversion Date" means the earliest to occur of (i) the fifth anniversary
of the first date on which the Significant Stockholder acquires 67% or more of
the total number of shares of Common Stock outstanding, determined on a Fully
Diluted Basis, (ii) the consummation of any of the Exchange Options, (iii) the
first day after the Closing Date on which the Significant Stockholder owns no
shares of Class B Common Stock and (iv) the termination of the Exchange
Agreement prior to the Closing referred to therein unless the holders of a
majority of the Class B Common Stock otherwise agree in writing.
"Debt" as of any date means the sum (without duplication) of (i) long-term
debt (including the current portion of long-term debt) of the Corporation and
its consolidated subsidiaries on such date, (ii) capitalized lease obligations
of the Corporation and its consolidated subsidiaries on such date, (iii)
reimbursement obligations of the Corporation and its consolidated subsidiaries
on such date with respect to drawings under letters of credit and (iv) all
liabilities of others of the kind described in clauses (i), (ii) and (iii),
above, that the Corporation or any of its consolidated subsidiaries has
guaranteed or otherwise expressly assumed, in the case of clause (i), (ii) or
(iii), above, as determined in accordance with GAAP and the Corporation
Accounting Practices applied on a consistent basis, and in the case of clause
(iv), above, in an amount equal to the maximum liability thereunder upon the
occurrence of the contingency giving rise to the obligation thereunder.
"DGCL" means the General Corporation Law of the State of Delaware.
"EBITDA Multiple" means the ratio of (a) the sum of (i) Debt of the
Corporation and its consolidated subsidiaries, plus all accrued but unpaid
interest thereon, less cash and cash equivalents of the Corporation and its
consolidated subsidiaries, (ii) Other Liabilities and (iii) $131,000,000 to (b)
the LTM Operating EBITDA, with each measurement determined as of September 30,
1995 in accordance with the audited financials to be delivered by the Company
pursuant to Section 6.15 of the Exchange Agreement.
"Enabling Agreement" means the Enabling Agreement, dated as of November 10,
1995, by and between Occidental Petroleum Corporation and the Corporation.
"Exchange Agreement" means the Agreement and Plan of Share Exchange, dated
as of November 10, 1995, by and between Occidental Petroleum Corporation and
INDSPEC Holding Corporation.
"Exchange Options" means the Put Offer, the First Call Option and the
Second Call Option.
"Exchange Shares" means the Occidental Common Stock delivered or
deliverable for Class A Common Stock pursuant to the Exchange Options.
"First Call Closing Date" shall have the meaning set forth in Article VI,
Section 1(a).
"First Call Equity Value" means an amount equal to (i) the EBITDA Multiple
multiplied by 95% of the LTM Operating EBITDA, minus (ii) Net Debt plus Other
Liabilities, in each case calculated as of the last day of the fiscal month
immediately preceding the fiscal month in which the First Call Closing Date
occurs.
"First Call Exercise Date" means the date of the First Call Notice.
"First Call Notice" shall have the meaning set forth in Article VI, Section
1(b).
"First Call Option" means the redemption contemplated by Article VI,
Section 1.
"First Call Ratio" means (i) the First Call Equity Value divided by the
aggregate number of shares of Common Stock outstanding on the First Call Closing
Date, determined on a Fully Diluted Basis, divided by (ii) the Market Price of a
share of Occidental Common Stock on the fifth Trading Day next preceding the
First Call Closing Date.
"Fully Diluted Basis" means, with respect to any determination of the
number of shares of Common Stock outstanding as of any date, (i) the aggregate
number of such shares that are issued and outstanding as of such date, plus (ii)
the aggregate number of shares issuable upon conversion, exchange, or exercise
of all outstanding options (whether vested or unvested), warrants, securities or
other instruments of the Corporation that are convertible into, or exercisable
or exchangeable for, shares of Common Stock as of such date.
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"GAAP" means generally accepted accounting principles, as in effect in the
United States on September 30, 1995.
"LTM Operating EBITDA" means, as of any date, the operating profit of the
Corporation and its consolidated subsidiaries, for the last twelve fiscal months
ending on or prior to such date (the "measurement period"), plus, to the extent
deducted in calculating such operating profit (or minus, to the extent added in
calculating such operating profit), (i) depreciation and amortization expense,
(ii) profit sharing expense and bonuses to officers, (iii) research and
development expenses (and other expenses not in excess of $1,000,000 in the
aggregate for the measurement period) incurred in connection with the New Plant;
provided, that the amounts referred to in this clause (iii) will be added back
to operating profit only with respect to expenses incurred prior to the New
Plant Start-up Date, (iv) management fees to Castle Harlan, Inc. attributable to
the Castle Harlan Management Agreement (as defined in the Exchange Agreement),
all determined in accordance with GAAP and Corporation Accounting Practices
applied on a consistent basis; provided, however, that to the extent that there
is a change in Corporation Accounting Practices during the measurement period in
order to conform Corporation Accounting Practices to GAAP, then that amount of
revenue or expense arising as a result of such change in Corporation Accounting
Practices shall be added or subtracted, as the case may be, to LTM Operating
EBITDA, but only to the extent that such revenue or expense is attributable to
the measurement period.
"Market Price" means, as of any date, with respect to any security, the
average of the Closing Prices for such security on the twenty (20) consecutive
Trading Days immediately preceding such date (the "Valuation Period"); provided,
that if, during the Valuation Period there shall occur an ex-dividend date with
respect to any dividend payable on the Occidental Common Stock, or a record date
with respect to any subdivision, reclassification, combination or other
recapitalization affecting the Occidental Common Stock, then the Market Price of
the Occidental Common Stock shall be adjusted appropriately in a manner to be
determined by the Significant Stockholder and consented to by the Corporation
(which consent shall not be unreasonably withheld).
"Net Debt" means, as of any date, (i) the sum (without duplication) of all
Debt of the Corporation and its consolidated subsidiaries as of such date, plus
all accrued but unpaid interest thereon as of such date, plus the Working
Capital Adjustment, if any, as of such date, less (ii) the sum of (a) cash and
cash equivalents of the Corporation and its consolidated subsidiaries as of such
date, plus (b) the aggregate amount of all payments to be received by the
Corporation upon the exercise of any unexercised options (whether vested or
unvested) as of such date, plus (c) the amount of New Plant Capital Expenditures
as of such date, all determined in accordance with GAAP and Corporation
Accounting Practices applied on a consistent basis.
"New Plant" means the Corporation's proposed new resorcinol production
facility.
"New Plant Capital Expenditures" means the aggregate expenditures with
respect to the New Plant (including construction period interest) that are
capitalized on the Corporation's financial statements prepared for, or as of the
last day of, the fiscal month in which the New Plant Start-up Date occurs, but
only to the extent such expenditures are required or permitted to be so
capitalized by or in accordance with GAAP and Corporation Accounting Practices
applied on a consistent basis; provided, however, that for purposes of
determining the First Call Ratio, the Second Call Ratio and the Put Offer Ratio,
and for no other purpose, the amount of New Plant Capital Expenditures shall be
subject to adjustment as follows: (i) as of the last day of the first full
fiscal month following the fiscal month in which the New Plant Start-up Date
occurs, the amount of New Plant Capital Expenditures shall be reduced by an
amount equal to one-twelfth (1/12) of the amount thereof as of the last day of
the fiscal month in which the New Plant Start-up Date occurs, and (ii) for each
of the eleven fiscal months thereafter, the amount of New Plant Capital
Expenditures shall be reduced by an additional one-twelfth (1/12) of the amount
thereof as of the last day of the fiscal month in which the New Plant Startup
Date occurs.
"New Plant Start-up Date" means the first to occur of (i) the date
following the first 30 consecutive days of production at the New Plant during
which period such facility produces not less than 90% of its nameplate capacity
or (ii) the date 120 days after the date on which the New Plant produces one
pound of commercial grade resorcinol.
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"Occidental Common Stock" means the common stock, par value $.20 per share,
of Occidental Petroleum Corporation, a Delaware corporation, and, in the event
of any recapitalization, reorganization, merger or similar event involving
Occidental Petroleum Corporation, the securities that are issued in respect
thereof.
"Other Liabilities" means, as of any date, the sum (without duplication) of
all liabilities (other than current liabilities, Debt and net deferred income
taxes) of the Corporation and its consolidated subsidiaries as of such date
(including, without limitation, all environmental and other reserves and pension
and post retirement obligations), in each case, that are required to be recorded
as of such date in accordance with GAAP and Corporation Accounting Practices
applied on a consistent basis.
"Person" means any corporation, individual, joint stock company, joint
venture, partnership, unincorporated association, governmental regulatory
entity, country, state or political subdivision thereof, trust, municipality or
other entity.
"Put Offer" shall have the meaning set forth in the Enabling Agreement.
"Put Offer Ratio" shall have the meaning set forth in the Enabling
Agreement.
"Second Call Closing Date" shall have the meaning set forth in Article VI,
Section 2(b).
"Second Call Equity Value" means an amount equal to (i) the EBITDA Multiple
multiplied by the LTM Operating EBITDA, minus (ii) Net Debt plus Other
Liabilities, in each case, calculated as of the last day of the fiscal month
immediately preceding the fiscal month in which the Second Call Closing Date
occurs.
"Second Call Exercise Date" means the date of the Second Call Notice.
"Second Call Notice" shall have the meaning set forth in Article VI,
Section 2(b).
"Second Call Option" means the redemption contemplated by Article VI,
Section 2.
"Second Call Ratio" means (i) (a) the Second Call Equity Value divided by
the aggregate number of shares of Common Stock outstanding on the Second Call
Closing Date, determined on a Fully Diluted Basis, or (b) if the Second Call
Option is being exercised pursuant to clause (i) of Section 2(a) of Article VI
hereof and the highest purchase price per share of Class A Common Stock paid by
the Significant Stockholder in acquiring any shares of such stock during the
twelve (12) months immediately preceding the Second Call Closing Date (excluding
any shares acquired on or prior to the Closing Date), is greater than the amount
of clause (a), above, such purchase price, in either case, divided by (ii) the
Market Price of a share of Occidental Common Stock on the fifth Trading Day next
preceding the Second Call Closing Date.
"Securities Act" means the Securities Act of 1933, as amended.
"Significant Stockholder" means, collectively, Occidental Petroleum
Corporation, a Delaware corporation, and its Affiliates.
"subsidiary" or "subsidiaries" means, with respect to any Person, (i) a
corporation of which such Person, one or more subsidiaries of such Person or
such Person and one or more subsidiaries of such Person, directly or indirectly,
owns more than 50% of the capital stock of such corporation having generally the
right to vote in the election of directors of such corporation, (ii) a
partnership of which such Person or a subsidiary of such Person is a general
partner, (iii) a limited liability company of which such Person or a subsidiary
of such Person is a managing member, or (iv) any entity (other than a
corporation, partnership, limited liability company or an employee benefit plan
trust) in which such Person, one or more subsidiaries of such Person, or such
Person and one or more subsidiaries of such Person, directly or indirectly, has
(a) more than a 50% ownership or other equity interest or (b) the power to elect
or direct the election of the directors or other governing body of such entity.
"Trading Day" means a day on which the New York Stock Exchange is open for
business.
"Working Capital" means, as of any date, (i) current assets (excluding cash
and cash equivalents) of the Corporation and its consolidated subsidiaries, as
of such date, less (ii) current liabilities (excluding the
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current portion of long-term debt and accrued but unpaid interest thereon) of
the Corporation and its consolidated subsidiaries, as of such date, all
determined in accordance with GAAP and the Corporation Accounting Principles
applied on a consistent basis.
"Working Capital Adjustment" means, with respect to any determination of
the amount of Net Debt, the amount equal to (i) (a) the sum of the amounts of
Working Capital as of the last day of each of the four fiscal quarters preceding
the date of such determination of the amount of Net Debt, divided by (b) four,
minus (ii) the amount of Working Capital as of such date of determination of the
amount of Net Debt; provided, however, that if the amount of such difference is
less than 10% of the amount in the foregoing clause (i), the Working Capital
Adjustment shall be equal to zero.
ARTICLE IV.
The purpose for which the Corporation is organized is to engage in any
lawful act or activity for which a corporation may be organized under the DGCL.
ARTICLE V.
SECTION 1. Capital Stock. The total number of shares of stock that the
Corporation shall have authority to issue is one hundred and seventy thousand
(170,000) shares, divided into the three following classes:
(a) twenty thousand (20,000) shares of Preferred Stock, par value $.01
per share (the "Preferred Stock");
(b) seventy-five thousand (75,000) shares of Class A Common Stock, par
value $.01 per share (the "Class A Common Stock"); and
(c) seventy-five thousand (75,000) shares of Class B Common Stock, par
value $.01 per share (the "Class B Common Stock").
SECTION 2. Preferred Stock. The Board of Directors is expressly authorized
to provide for the issuance of all or any shares of the Preferred Stock in one
or more classes or series, and to fix for each such class or series such voting
powers, full or limited, or no voting powers, and such distinctive designations,
preferences and relative, participating, optional or other special rights and
such qualifications, limitations or restrictions thereof, as shall be stated and
expressed in the resolution or resolutions adopted by the Board of Directors
providing for the issuance of such class or series and as may be permitted by
the DGCL.
SECTION 3. Common Stock.
(a) Each share of Class A Common Stock and Class B Common Stock shall be
identical in all respects and shall have equal powers, preferences, rights and
privileges, except as otherwise provided in this Certificate of Incorporation.
Holders of Class A Common Stock and Class B Common Stock shall vote together as
a single class on every matter submitted to a vote of the stockholders of the
Corporation, except as to those matters on which separate class voting is
required by applicable law or by this Certificate of Incorporation.
(b) Prior to the Conversion Date, every holder of Class A Common Stock
shall be entitled to four and eight tenths (4.8) votes for each share of Class A
Common Stock standing in such holder's name in the transfer books of the
Corporation, and every holder of Class B Common Stock shall be entitled to one
(1) vote for each share of Class B Common Stock standing in such holder's name
in the transfer books of the Corporation. From and after the Conversion Date,
every holder of Common Stock shall be entitled to one (1) vote for each share of
Common Stock standing in such holder's name in the transfer books of the
Corporation.
(c) The Corporation may not effect a stock split (whether by dividend or
otherwise), reverse stock split, reclassification or other similar event with
respect to any class of Common Stock unless it effects at the same time an
identical stock split, reverse stock split, reclassification or other similar
event with respect to all classes of Common Stock.
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(d) Subject to the rights of holders of any series of Preferred Stock,
dividends shall be paid on the Common Stock when, as and if declared by the
Board of Directors and may be payable in cash, property or securities of the
Corporation; provided, that (i) the holders of Class A Common Stock and Class B
Common Stock shall be entitled to share equally, share for share, in such
dividends; and (ii) if dividends or distributions are declared that are payable
in shares of, or in subscription or other rights to acquire shares of, Class A
Common Stock or Class B Common Stock, dividends or distributions shall be
declared that are payable at the same rate per share on all classes of Common
Stock, and the dividends or distributions payable in shares of, or in
subscription or other rights to acquire shares of, any particular class of
Common Stock shall be made available to each holder of Common Stock.
(e) Shares of Class A Common Stock and Class B Common Stock that have been
issued and subsequently acquired by the Corporation in any manner, including
shares purchased, redeemed or exchanged by the Corporation, shall (upon
compliance with any applicable provisions of the DGCL) be retired and have the
status of authorized and unissued shares of Class A Common Stock and Class B
Common Stock, respectively.
SECTION 4. Conversion of Class A Common Stock.
(a) Prior to the Conversion Date, each share of Class A Common Stock
acquired by the Significant Stockholder shall, without any action on the part of
the Significant Stockholder, be converted into one fully paid and nonassessable
share of Class B Common Stock. Immediately upon the acquisition of any shares of
Class A Common Stock by the Significant Stockholder prior to the Conversion
Date, (i) such shares of Class A Common Stock shall be deemed no longer
outstanding, (ii) all rights whatsoever with respect to such shares of Class A
Common Stock shall terminate, and (iii) the Significant Stockholder shall be
treated for all purposes as having become the owner of an equal number of shares
of Class B Common Stock.
(b) As soon as practicable on or following the date of acquisition by the
Significant Stockholder of shares of Class A Common Stock prior to the
Conversion Date, upon surrender of any certificate or certificates evidencing
such shares of Class A Common Stock, the Corporation shall deliver to the holder
of such shares a certificate representing the shares of Class B Common Stock
into which such shares of Class A Common Stock have been converted.
(c) Prior to the Conversion Date, the Corporation shall at all times
reserve and keep available out of the authorized and unissued shares of Class B
Common Stock, solely for the purpose of effecting the conversion of the
outstanding Class A Common Stock, such number of shares of Class B Common Stock
as shall from time to time be sufficient to effect a conversion of all shares of
Class A Common Stock, and if, at any time, the number of authorized and unissued
shares of Class B Common Stock shall not be sufficient to effect conversion of
the then outstanding Class A Common Stock, the Corporation shall take such
corporate action as may be necessary to increase the number of authorized and
unissued shares of Class B Common Stock to such number as shall be sufficient
for such purposes. Prior to the Conversion Date, the Corporation shall not take
any action that would cause the total number of shares of Class B Common Stock
then outstanding or issuable upon the conversion of the shares of Class A Common
Stock then outstanding or reserved for issuance for any other purpose to exceed
the total number of shares of Class B Common Stock authorized.
(d) The Corporation shall pay any documentary, stamp or similar issue or
transfer tax due on the issue of Class B Common Stock upon conversion of shares
of Class A Common Stock into Class B Common Stock. The Corporation shall not,
however, be required to pay any tax that may be payable in respect of any
transfer involved in the issue and delivery of Class B Common Stock in a name
other than that in which the Class A Common Stock so converted was registered,
and no such issue or delivery shall be made unless and until the person
requesting such issue has paid to the Corporation the amount of any such tax, or
has established to the reasonable satisfaction of the Corporation that such tax
has been paid.
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ARTICLE VI.
SECTION 1. First Call Redemption Option.
(a) Upon receipt by the Corporation of a written notice (the "First Call
Exercise Notice") from the Significant Stockholder requesting the redemption of
Class A Common Stock pursuant to this Section, and specifying the date fixed for
redemption (the "First Call Closing Date"), which shall be the last Business Day
of a fiscal month and a date not less than 45 days after the date of the First
Call Exercise Notice, at any time on or after the fifth anniversary of the
Closing Date and on or before the seventh anniversary of the Closing Date, the
Corporation shall redeem all, but not less than all, of the shares of Class A
Common Stock then outstanding for that number of fully paid and nonassessable
shares of Occidental Common Stock equal to (i) the number of shares so redeemed,
multiplied by (ii) the First Call Ratio.
(b) The Corporation shall give notice of redemption pursuant to Section
1(a), above, by mailing each record holder of shares of Class A Common Stock,
not less than thirty (30) days nor more than sixty (60) days prior to the First
Call Closing Date, a notice (the "First Call Notice"), which shall include or be
accompanied by all information required by law and shall specify:
(i) the method of calculating the First Call Ratio;
(ii) the First Call Closing Date; and
(iii) the place or places at which the shares of Class A Common Stock
shall be redeemed upon presentation and surrender of the certificates
evidencing such shares, duly endorsed or accompanied by proper instruments
of transfer and, if required pursuant to Section 3(b) of this Article, an
amount sufficient to pay any transfer or similar taxes (or evidence
demonstrating that such taxes have been paid).
(c) From and after the First Call Closing Date, all previously issued and
outstanding shares of Class A Common Stock shall be null and void and shall be
deemed no longer outstanding; provided, however, that if the Corporation shall
fail to deliver the number of shares of Occidental Common Stock required
pursuant to Section 1(a) of this Article upon due presentation and surrender of
certificates evidencing any shares of Class A Common Stock in accordance with
clause (iii) of Section 1(b) of this Article, then such shares of Class A Common
Stock shall remain outstanding until such shares of Occidental Common Stock have
been so delivered.
SECTION 2. Second Call Redemption Option.
(a) If (i) at any time, the Significant Stockholder acquires 67% or more of
the number of shares of Common Stock then outstanding, determined on a Fully
Diluted Basis (excluding any shares of Common Stock acquired pursuant to the Put
Offer), or (ii) a number of shares of Class A Common Stock have been tendered
pursuant to the Put Offer such that, upon the acquisition of such shares, the
Significant Stockholder would own 67% or more of the number of shares of Common
Stock then outstanding, determined on a Fully Diluted Basis, then, at any time
during the 90 day period beginning on the first Business Day after such
acquisition (or, in the case of clause (ii), the tender of such shares), the
Corporation shall, upon receipt by the Corporation of a written notice to such
effect from the Significant Stockholder, redeem all, but not less than all, of
the shares of Class A Common Stock then outstanding for that number of fully
paid and nonassessable shares of Occidental Common Stock equal to (A) the number
of shares so redeemed, multiplied by (B) the Second Call Ratio.
(b) The Corporation shall give notice of redemption pursuant to Section
2(a), above, by mailing each record holder of shares of Class A Common Stock,
not less than thirty (30) days nor more than sixty (60) days prior to the date
fixed for redemption (the "Second Call Closing Date"), a notice (the "Second
Call Notice"), which shall include or be accompanied by all information required
by law and shall specify:
(i) the method of calculating the Second Call Ratio;
(ii) the Second Call Closing Date, which shall be the last Business
Day of a fiscal month; and
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(iii) the place or places at which the shares of Class A Common Stock
shall be redeemed upon presentation and surrender of the certificates
evidencing such shares, duly endorsed or accompanied by proper instruments
of transfer and, if required pursuant to Section 3(b) of this Article, an
amount sufficient to pay any transfer or similar taxes (or evidence
demonstrating that such taxes have been paid).
(c) From and after the Second Call Closing Date, all previously issued and
outstanding shares of Class A Common Stock shall be null and void and shall be
deemed no longer outstanding; provided, however, that if the Corporation shall
fail to deliver the number of shares of Occidental Common Stock required
pursuant to Section 2(a) of this Article upon due presentation and surrender of
certificates evidencing any shares of Class A Common Stock in accordance with
clause (iii) of Section 2(b) of this Article, then such shares of Class A Common
Stock shall remain outstanding until such shares of Occidental Common Stock have
been so delivered.
SECTION 3. Miscellaneous.
(a) No fractional shares or scrip representing fractional Exchange Shares
shall be issued upon redemption of shares of Class A Common Stock. The number of
full Exchange Shares issuable upon redemption of shares of Class A Common Stock
shall be computed on the basis of the aggregate number of shares of Class A
Common Stock so surrendered by each record holder thereof. In lieu of any
fractional Exchange Share that would otherwise be issuable upon redemption of
any shares of Class A Common Stock, the holder thereof shall be entitled to a
cash adjustment in respect of such fractional share in an amount equal to the
same fraction of the Market Price of a share of Occidental Common Stock on the
second Trading Day immediately preceding the First Call Closing Date or the
Second Call Closing Date, as the case may be, calculated to the nearest cent,
with one-half cent rounded upward, and the number of full Exchange Shares
issuable upon redemption thereof shall be decreased to the next lowest number of
whole shares.
(b) The Corporation shall not be required to pay any tax that may be
payable in respect of any issuance or delivery of Exchange Shares, and no such
issuance or delivery shall be made unless and until the holder of shares of
Class A Common Stock being redeemed has paid the amount of any such tax or has
established, to the satisfaction of the Corporation, that such tax has been
paid.
ARTICLE VII.
The following provisions are inserted for the management of the business
and for the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
(a) The business and affairs of the Corporation shall be managed by or
under the direction of its Board of Directors. Except as otherwise provided
in this Article, prior to the Conversion Date, all actions to be taken by
the Board of Directors shall require the affirmative vote of the greater of
(i) five (5) directors or (ii) a majority of the directors then in office.
(b) The number of directors of the Corporation shall be as from time
to time fixed by, or determined in the manner provided in, the By-Laws of
the Corporation, provided, that subject to (i) any rights to elect
additional directors that may be granted to the holders of any series of
Preferred Stock and (ii) the provisions of paragraph (c) of this Article,
prior to the Conversion Date, one-half of the Board of Directors (the
"Class A Directors") shall be elected by the holders of the Class A Common
Stock, voting as a separate class, and one-half of the Board of Directors
(the "Class B Directors") shall be elected by the holders of the Class B
Common Stock, voting as a separate class.
(c) Prior to the Conversion Date:
(i) Class A Directors may be removed only by an affirmative vote
of the holders of a majority of the shares of Class A Common Stock
then outstanding, and Class B Directors may be removed only by an
affirmative vote of the holders of a majority of the shares of Class
B Common Stock then outstanding.
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(ii) If, during the interval between annual meetings of
stockholders for the election of directors, (A) the number of Class A
Directors shall, by reason of resignation, death or removal, be
reduced, the vacancy or vacancies in the Class A Directors may,
subject to applicable law, be filled by a majority vote of the
remaining Class A Directors then in office, even though less than a
quorum, or (B) the number of Class B Directors shall, by reason of
resignation, death or removal, be reduced, the vacancy or vacancies
in the Class B Directors may, subject to applicable law, be filled
by a majority vote of the remaining Class B Directors then in office,
even though less than a quorum. Any Class A Director or Class B
Director so elected to fill a vacancy shall hold office for the
unexpired term in respect of which the vacancy occurred and until
his successor shall be elected and shall qualify or until his
earlier death, resignation or removal in the manner provided by this
Certificate of Incorporation.
ARTICLE VIII.
In furtherance and not in limitation of the powers conferred by statute,
subject to Article VII, the Board of Directors is hereby authorized to adopt,
amend or repeal the By-laws of the Corporation. Prior to the Conversion Date,
the By-laws of the Corporation may be adopted, amended or repealed by the
stockholders only if the holders of a majority of the shares of Class A Common
Stock then outstanding and the holders of a majority of the shares of Class B
Common Stock then outstanding have approved such adoption, amendment or repeal.
ARTICLE IX.
Election of directors need not be by written ballot unless the By-laws of
the Corporation so provide.
ARTICLE X.
No director shall be personally liable to the Corporation or its
stockholders for monetary damages for any breach of fiduciary duty by the
director as a director. Notwithstanding the foregoing sentence, a director shall
be liable to the extent provided by applicable law (i) for breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) pursuant to Section 174 of the DGCL, or (iv) for
any transaction from which the director derived an improper personal benefit. If
the DGCL is hereafter amended to authorize, with the approval of a corporation's
stockholders, further reductions in the liability of the corporation's directors
for breach of fiduciary duty, then a director of the Corporation shall not be
liable for any such breach to the fullest extent then permitted by the DGCL. No
amendment to or repeal of this Article shall apply to or have any effect on the
liability or alleged liability of any director of the Corporation for or with
respect to any act or omission of a director occurring prior to such amendment.
ARTICLE XI.
Meetings of stockholders may be held within or without the State of
Delaware, as the By-Laws of the Corporation may provide. The books of the
Corporation may be kept (subject to any provision contained in the DGCL) outside
the State of Delaware at such place or places as may be designated from time to
time by the Board of Directors or in the By-Laws of the Corporation.
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ANNEX IV
FORM OF AMENDED AND RESTATED
BY-LAWS
OF
INDSPEC HOLDING CORPORATION
(HEREINAFTER CALLED THE "CORPORATION")
ARTICLE I
OFFICES
SECTION 1. Registered Office. The registered office of the Corporation
shall be in the City of Wilmington, County of New Castle, State of Delaware.
SECTION 2. Other Offices. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine.
ARTICLE II
DEFINITIONS
Capitalized terms used but not otherwise defined herein shall have the
respective meanings given thereto in the Certificate of Incorporation of the
Corporation as in effect on , 1995. In addition, as used herein, the
following terms have the following meanings:
"Annual Capital Budget" means the Corporation's annual budget, including,
in reasonable detail, budgeted annual capital expenditures, prepared on a basis
consistent with the Corporation's existing capital appropriation process and
annual capital program.
"Board of Directors" means the board of directors of the Corporation.
"Credit Agreement" means the Credit Agreement, dated as of December 2,
1993, among INDSPEC, INDSPEC Technologies, Ltd., INDSPEC Chemical Corporation,
the Banks party thereto from time to time and Bankers Trust Company, as Agent.
"Incurrence" means the direct or indirect incurrence, creation, assumption
or guarantee.
"Indebtedness" of any person means, without duplication, (i) all
liabilities and obligations, contingent or otherwise, of such person, (a) in
respect of borrowed money (whether or not the recourse of the lender is to the
whole of the assets of such person or only to a portion thereof), (b) evidenced
by bonds, notes, debentures or similar instruments, (c) representing the balance
deferred and unpaid of the purchase price of any property or services, except
such as would constitute trade payables to trade creditors in the ordinary
course of business that are not more than 90 days past their original due date,
(d) evidenced by bankers' acceptances or similar instruments issued or accepted
by banks, (e) relating to a capitalized lease obligation, or (f) evidenced by a
letter of credit or a reimbursement obligation of such person with respect to
any letter of credit; (ii) all obligations of such person under interest swap
and hedging obligations other than hedging of functional currencies and interest
rates on existing Indebtedness in the ordinary course of business; (iii) all
liabilities of others of the kind described in the preceding clause (i) or (ii)
that such person has guaranteed or that is otherwise its legal liability and all
obligations to purchase, redeem or acquire any capital stock; and (iv) any and
all deferrals, renewals, extensions, refinancings, refundings (whether direct or
indirect) of any liability of the kind described in any of the preceding clauses
(i), (ii) or (iii), or this clause (iv), whether or not between or among the
same parties.
"Indenture" means the Indenture, dated as of December 2, 1993, between
INDSPEC Chemical Corporation and United States Trust Company of New York,
relating to $157,500,000 principal amount of 11 1/2% Senior Subordinated
Discount Notes due 2003 and 11 1/2% Senior Subordinated Discount Notes due 2003,
Series B.
<PAGE> 170
"Investment" means (i) the acquisition (whether for cash, property,
services, securities or otherwise) of capital stock, bonds, notes, debentures,
partnership or other ownership interests or other securities of any other Person
or any agreement to make any such acquisition; (ii) the making of any deposit
with, or advance, loan, contribution (other than contributions required by law
to be made to employee benefit plans) or other extension of credit to, any other
Person (including the purchase of property from another Person subject to an
understanding or agreement, contingent or otherwise, to resell such property to
any other Person) and (without duplication) any amount committed to be advanced,
loaned or extended to any other Person (but excluding advances to customers
arising in the course of sales to customers in the ordinary course of business
consistent with past practice); (iii) the entering into of any guarantee of, or
other contingent obligation with respect to, Indebtedness or any other liability
of any other Person; or (iv) the entering into of any interest swap or other
hedging obligation with any other Person.
"Lien" means any mortgage, lien, pledge, charge, security interest or other
encumbrance of any kind, whether or not filed, recorded or otherwise perfected
under applicable law (including any conditional sale or other title retention
agreement and any lease deemed to constitute a security interest and any option
or other agreement to give any security interest).
"Material Contracts" means the agreements and instruments set forth on
Schedule A hereto.
"Permitted Investments" means Investments (a) in short-term certificates of
deposit, time deposits or bankers acceptances having maturities not exceeding
six months with (x) any commercial bank having a combined capital and surplus of
not less than $500,000,000 or (y) any financial institution if the Investment is
fully insured by an agency or instrumentality of the United States of America;
(b) in marketable direct obligations issued or unconditionally guaranteed by the
United States of America or issued by any agency thereof and backed by the full
faith and credit of the United States of America, in each case maturing within
one year from the date of acquisition thereof; (c) in commercial paper maturing
no more than one year from the date of acquisition thereof and, at the time of
acquisition, having a rating of A-1 (or better) by Standard & Poor's Corporation
("S&P") or P-1 (or better) by Moody's Investors Service, Inc. ("Moody's"), or
participations in loans maturing no more than one year after the date of
acquisition of such participation to companies which, at the time of such
participation, have one of such commercial paper ratings (or better); (d) in
repurchase agreements entered into with banks described in clause (a) above or
investment banks having shareholders' equity, together with Affiliates of any
such bank or investment bank, of a least $500,000,000, such repurchase
agreements to be collateralized at least 100% by negotiable securities of a type
described in clause (a), (b) or (c) above and to have a term not to exceed six
months; (e) in obligations the interest on which is exempt from federal income
taxation that are issued by any State of the United States of America or any
political subdivision, agency, authority or other instrumentality thereof and
that (x) are rated at least AA or SP-1 by S&P, or at least Aa or MIG 2 by
Moody's and (y) have a final maturity of not more than one year from the date of
purchase or allow the investor to put the security back to the issuer or
entities described in clause (d) above at par within one year from the date of
purchase; (f) in money-market mutual funds having assets of $1,000,000,000 or
more that invest at least 90% of their assets in bonds or notes that have a
rating of AA (or better) by S&P or Aa (or better) by Moody's or securities of
the type referred to in clause (a), (b) or (c) above and that have a maximum
maturity of two years or less; (g) in money-market preferred stock that are
rated at least AA by S&P or at least Aa by Moody's at the time of acquisition
thereof; or (h) consisting of purchases of futures contracts for the purpose of
protection from commodity price, interest rate or currency conversion rate
fluctuations posed by contract obligations of the Company; provided that the
tenor and amount of any such futures contract shall be consistent with the
obligations of the Company under any such contract.
"Transfer" means any sale, transfer, lease, pledge or other disposition.
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ARTICLE III
MEETINGS OF STOCKHOLDERS
SECTION 1. Place of Meetings. Meetings of the stockholders for the election
of directors or for any other purpose shall be held at such time and place,
either within or without the State of Delaware as shall be designated from time
to time by the Board of Directors and stated in the notice of the meeting or in
a duly executed waiver of notice thereof.
SECTION 2. Annual Meetings. The Annual Meetings of Stockholders shall be
held on such date and at such time as shall be designated from time to time by
the Board of Directors and stated in the notice of the meeting, at which
meetings the stockholders shall elect a Board of Directors as provided in the
Certificate of Incorporation, and transact such other business as may properly
be brought before the meeting. Written notice of the Annual Meeting stating the
place, date and hour of the meeting shall be given to each stockholder entitled
to vote at such meeting not less than ten nor more than sixty days before the
date of the meeting.
SECTION 3. Special Meetings. Unless otherwise prescribed by law or by the
Certificate of Incorporation, Special Meetings of Stockholders, for any purpose
or purposes, may be called by either (i) the Chairman, if there be one, or (ii)
the President, (iii) any Vice President, if there be one, (iv) the Secretary or
(v) any Assistant Secretary, if there be one, and shall be called by any such
officer at the request in writing of a majority of the entire Board of Directors
or at the request in writing of stockholders owning a majority of the capital
stock of the Corporation issued and outstanding and entitled to vote. Such
request shall state the purpose or purposes of the proposed meeting. Written
notice of a Special Meeting stating the place, date and hour of the meeting and
the purpose or purposes for which the meeting is called shall be given not less
than ten nor more than sixty days before the date of the meeting to each
stockholder entitled to vote at such meeting.
SECTION 4. Quorum. Except as otherwise provided by law or by the
Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business, provided that when a specified
item of business is required to be voted on by a class or series, voting as a
separate class, the holders of a majority of shares of such class or series
shall constitute a quorum for the transaction of such specified item of
business. If, however, such quorum shall not be present or represented at any
meeting of the stockholders, the stockholders entitled to vote thereat, present
in person or represented by proxy, shall have power to adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present or represented. At such adjourned meeting at which a
quorum shall be present or represented, any business may be transacted which
might have been transacted at the meeting as originally noticed. If the
adjournment is for more than thirty days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder entitled to vote at the meeting.
SECTION 5. Voting. Unless otherwise required by law, the Certificate of
Incorporation or these By-Laws, any question brought before any meeting of
stockholders shall be decided by the vote of the holders of a majority of the
stock represented and entitled to vote thereat. Unless otherwise provided in the
Certificate of Incorporation or these By-Laws, each stockholder represented at a
meeting of stockholders shall be entitled to cast one vote for each share of the
capital stock entitled to vote thereat held by such stockholder. Such votes may
be cast in person or by proxy but no proxy shall be voted on or after three
years from its date, unless such proxy provides for a longer period. The Board
of Directors, in its discretion, or the officer of the Corporation presiding at
a meeting of stockholders, in his discretion, may require that any votes cast at
such meeting shall be cast by written ballot.
SECTION 6. Consent of Stockholders in Lieu of Meeting. Unless otherwise
provided in the Certificate of Incorporation, any action required or permitted
to be taken at any Annual or Special Meeting of Stockholders of the Corporation,
may be taken without a meeting, without prior notice and without a vote, if a
consent in writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at
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which all shares entitled to vote thereon were present and voted. Prompt notice
of the taking of the corporate action without a meeting by less than unanimous
written consent shall be given to those stockholders who have not consented in
writing.
Section 7. List of Stockholders Entitled to Vote. The officer of the
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make, at least ten days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder of the Corporation who is
present.
SECTION 8. Stock Ledger. The stock ledger of the Corporation shall be the
only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 7 of this Article III or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.
ARTICLE IV
DIRECTORS
SECTION 1. Number and Election of Directors.
(a) Subject to the provisions of the Certificate of Incorporation, (i)
prior to the Conversion Date, the Board of Directors shall consist of six (6)
members, three (3) of whom shall be Class A Directors, elected by the holders of
the Class A Common Stock voting as a separate class, and three (3) of whom shall
be Class B Directors, elected by the holders of the Class B Common Stock voting
as a separate class, in each case, as provided in the Certificate of
Incorporation and (ii) from and after the Conversion Date, the Board of
Directors shall consist of not less than one nor more than fifteen members, the
exact number of which shall initially be six (6) and thereafter be fixed from
time to time by the Board of Directors. Except as provided in Section 2 of this
Article, directors shall be elected at Annual Meetings of Stockholders, and each
director so elected shall hold office until the next Annual Meeting and until
his successor is duly elected and qualified, or until his earlier resignation or
removal. Prior to the Conversion Date, only Class A Directors and holders of
Class A Common Stock may nominate a candidate for election as a Class A Director
and only Class B Directors and holders of Class B Common Stock may nominate a
candidate for election as a Class B Director. Any director may resign at any
time upon notice to the Corporation. Directors need not be stockholders.
(b) Prior to the Conversion Date, if the Board of Directors shall (i) fail
to approve an Annual Capital Budget for the next fiscal year at least one month
prior to the beginning of such next fiscal year, (ii) fail to approve the
Corporation's entering into or renewal of any Material Contract necessary for
the continued operation of any of the Corporation's production facilities, or
(iii) by vote of at least five (5) members of the Board of Directors, specify
any other matter as being subject to this Section 1(b), then subject to
applicable law, the number of members of the Board of Directors shall
temporarily be increased by three (3) and the vacancies created thereby shall be
filled by a vote of at least five (5) of the directors then in office. Subject
to applicable law, such temporary additional directors shall serve until the
Board of Directors have resolved the issue or issues that precipitated the
election of such additional directors and thereafter the number of directors
shall be restored to the number existing prior to the appointment of such
temporary additional directors.
SECTION 2. Removal; Vacancies. Prior to the Conversion Date, Directors may
be removed and vacancies filled only as provided in the Certificate of
Incorporation. Following the Conversion Date, vacancies and newly created
directorships resulting from any increase in the authorized number of directors
may be filled by a majority of the directors then in office, though less than a
quorum, or by a sole remaining director, and the directors so chosen shall hold
office until the next annual election and until their successors are duly
elected and qualified, or until their earlier resignation or removal.
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SECTION 3. Duties and Powers.
(a) The business of the Corporation shall be managed by or under the
direction of the Board of Directors which may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by statute or by
the Certificate of Incorporation or by these By-Laws directed or required to be
exercised or done by the stockholders.
(b) Prior to the Conversion Date, the following actions shall not be
effected or put in place (and will otherwise be null and void) by the
Corporation, and the Corporation shall cause its subsidiaries not to take any of
the following actions, unless such action has been duly authorized by the Board
of Directors:
(i) the merger or consolidation of the Corporation or any of its
subsidiaries with or into any person, or the dissolution or liquidation of
the Corporation or any of its subsidiaries;
(ii) the establishment or acquisition of any corporation, joint
venture, partnership, limited liability company, trust or other entity that
is not a wholly owned subsidiary of the Corporation;
(iii) the making of any Investment (other than a Permitted Investment)
in excess of $10,000 in any Person other than a wholly owned subsidiary of
the Corporation;
(iv) the Corporation or any of its subsidiaries entering into any line
of business that is materially different from the business conducted by the
Corporation or any of its subsidiaries immediately prior to the Closing
Date;
(v) the Transfer by the Corporation or any of its subsidiaries (other
than among the Corporation and its wholly owned subsidiaries) of assets
with a fair market value in excess of $1,000,000 in a single transaction or
series of related transactions (other than Transfers (A) of cash or
inventory in the ordinary course of business, consistent with past practice
or (B) pursuant to the Exchange Options);
(vi) the Incurrence by the Corporation or any of its subsidiaries of
Indebtedness in excess of $1,000,000 in any single transaction or series of
related transactions other than (A) up to $2 million of Indebtedness at any
time outstanding incurred to finance insurance premiums in the ordinary
course of business, consistent with past practice, (B) Indebtedness
incurred under the Credit Agreement in the ordinary course of business,
consistent with past practice, and (C) the accretion of interest with
respect to outstanding notes issued under the Indenture;
(vii) the Incurrence by the Corporation or any of its subsidiaries of
any consensual Lien (or series of related Liens) upon assets of the
Corporation or any of its subsidiaries securing obligations in an amount in
excess of $500,000;
(viii) the issuance or sale of capital stock of the Corporation or any
of its subsidiaries or any securities that are convertible into or
exchangeable for such capital stock (other than upon the exercise of
options or warrants outstanding on the Closing Date);
(ix) the declaration or payment of any dividends or distributions,
with respect to, or repurchases or redemptions of, capital stock of the
Corporation or any of its subsidiaries or securities convertible into or
exchangeable for, or rights to acquire such capital stock (other than
pursuant to the Exchange Options);
(x) the approval or amendment of the Annual Capital Budget; the making
of any capital expenditure or expenditures not detailed in the Annual
Capital Budget that (A) exceed $500,000 in any single transaction or series
of related transactions or (B) would cause total capital expenditures for
the year to exceed the total amount in the Annual Capital Budget by more
than 5%;
(xi) entering into or amending operating leases with respect to
equipment having a value in excess of $500,000 (excluding renewals or
replacements of leases for rolling stock) in any single transaction or
series of related transactions;
(xii) entering into any new Material Contract or amending in any
material respect any existing Material Contract;
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(xiii) the amendment, alteration, modification or repeal of the
certificate of incorporation, by-laws or other organizational document of
the Corporation or of any of its subsidiaries;
(xiv) any change of the independent public accountants for the
Corporation;
(xv) any change of any material accounting policy, practice or
estimates (including, without limitation, any change in fiscal year);
(xvi) any transaction between the Corporation or any of its
subsidiaries, on the one hand, and any executive officer or employee of the
Corporation or any of its subsidiaries, on the other hand, that is outside
the normal and ordinary course of employment matters (other than pursuant
to contracts in existence on the Closing Date or contracts that have been
approved by the Board of Directors); or
(xvii) the appointment or removal of any of the executive officers of
the Corporation; the increase in the compensation of, or the hiring of, any
employee with a base salary in excess of $100,000; the adoption or
amendment of any employment contract or the adoption or material amendment
of any employee benefit plan of the Corporation or any of its subsidiaries;
the determination or approval of the levels of participation by, or
payments to, executive officers or other employees of the Corporation or
any of its subsidiaries in profit participation plans and bonuses (other
than pursuant to contracts in existence on the Closing Date or contracts
that have been approved by the Board of Directors).
SECTION 4. Meetings. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware. Regular meetings of the Board of Directors may be held without notice
at such time and at such place as may from time to time be determined by the
Board of Directors. Special meetings of the Board of Directors may be called by
the Chairman, if there be one, the President, or any directors. Notice thereof
stating the place, date and hour of the meeting shall be given to each director
either by mail not less than forty-eight (48) hours before the date of the
meeting, by telephone or telegram on twenty-four (24) hours' notice, or on such
shorter notice as the person or persons calling such meeting may deem necessary
or appropriate in the circumstances.
SECTION 5. Voting. Except as may be otherwise specifically provided by law,
the Certificate of Incorporation or these By-Laws, at all meetings of the Board
of Directors, a majority of the entire Board of Directors shall constitute a
quorum for the transaction of business and the act of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors. If a quorum shall not be present at any meeting of the
Board of Directors, the directors present thereat may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present.
SECTION 6. Actions of Board. Unless otherwise provided by the Certificate
of Incorporation or these By-Laws, any action required or permitted to be taken
at any meeting of the Board of Directors or of any committee thereof may be
taken without a meeting, if all the members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 7. Meetings by Means of Conference Telephone. Unless otherwise
provided by the Certificate of Incorporation or these By-Laws, members of the
Board of Directors of the Corporation, or any committee designated by the Board
of Directors, may participate in a meeting of the Board of Directors or such
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this Section 7 shall constitute
presence in person at such meeting.
SECTION 8. Committees. From and after the Conversion Date, the Board of
Directors may, by resolution passed by a majority of the Board of Directors,
designate one or more committees, each committee to consist of one or more of
the directors of the Corporation. The Board of Directors may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of any such committee. In the absence or
disqualification of a member of a committee, and in the absence of a designation
by the Board of Directors of an alternate member to replace the absent or
disqualified member, the member or members thereof present at any meeting and
not disqualified from voting, whether or
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not he or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any absent or
disqualified member. From and after the Conversion Date, any committee, to the
extent allowed by law and provided in the resolution establishing such
committee, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the Corporation.
Each committee shall keep regular minutes and report to the Board of Directors
when required.
SECTION 9. Compensation. The directors may be paid their expenses, if any,
of attendance at each meeting of the Board of Directors. Directors who are not
employees of the Company, Occidental Petroleum Corporation or any of their
Affiliates may be paid a fixed sum for attendance at each meeting of the Board
of Directors or a stated salary as director. No such payment shall preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be allowed
like compensation for attending committee meetings.
SECTION 10. Interested Directors. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose if (ii) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors then in office,
even though the disinterested directors be less than a quorum; or (ii) the
material facts as to his or their relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the stockholders; or (iii) the contract or transaction is
fair as to the Corporation as of the time it is authorized, approved or
ratified, by the Board of Directors, a committee thereof or the stockholders.
ARTICLE V
OFFICERS
SECTION 1. General. The officers of the Corporation shall be chosen by the
Board of Directors and shall be a President, a Secretary and a Treasurer. The
Board of Directors, in its discretion, may also choose one or more Vice
Presidents, Assistant Secretaries, Assistant Treasurers and other officers. Any
number of offices may be held by the same person, unless otherwise prohibited by
law, the Certificate of Incorporation or these ByLaws. The officers of the
Corporation need not be stockholders of the Corporation nor need such officers
be directors of the Corporation.
SECTION 2. Election. The Board of Directors at its first meeting held after
each Annual Meeting of Stockholders shall elect the officers of the Corporation
who shall hold their offices for such terms and shall exercise such powers and
perform such duties as shall be determined from time to time by the Board of
Directors; and all officers of the Corporation shall hold office until their
successors are chosen and qualified, or until their earlier resignation or
removal. Any officer elected by the Board of Directors may be removed at any
time. Any vacancy occurring in any office of the Corporation shall be filled by
the Board of Directors. The salaries of all officers of the Corporation shall be
fixed by the Board of Directors.
SECTION 3. Voting Securities Owned by the Corporation. Powers of attorney,
proxies, waivers of notice of meeting, consents and other instruments relating
to securities owned by the Corporation may be executed in the name of and on
behalf of the Corporation by the President or any Vice President and any such
officer may, in the name of and on behalf of the Corporation, take all such
action as any such officer may deem advisable to vote in person or by proxy at
any meeting of security holders of any corporation in which the Corporation may
own securities and at any such meeting shall possess and may exercise any and
all rights and power incident to the ownership of such securities and which, as
the owner thereof, the Corporation might have exercised and
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possessed if present. The Board of Directors may, by resolution, from time to
time confer like powers upon any other person or persons.
SECTION 4. President. The President shall, subject to the control of the
Board of Directors, have general supervision of the business of the Corporation
and shall see that all orders and resolutions of the Board of Directors are
carried into effect. He shall execute all bonds, mortgages, contracts and other
instruments of the Corporation requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except that the other officers of the Corporation may sign and
execute documents when so authorized by these By-Laws, the Board of Directors or
the President. The President shall preside at all meetings of the stockholders
and the Board of Directors. The President shall be the Chief Executive Officer
of the Corporation. The President shall also perform such other duties and may
exercise such other powers as from time to time may be assigned to him by these
By-Laws or by the Board of Directors.
SECTION 5. Vice Presidents. At the request of the President or in his
absence or in the event of his inability or refusal to act, the Vice President
or the Vice Presidents if there is more than one (in the order designated by the
Board of Directors) shall perform the duties of the President, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the President. Each Vice President shall perform such other duties and have such
other powers as the Board of Directors from time to time may prescribe. If there
be no Vice President, the Board of Directors shall designate the officer of the
Corporation who, in the absence of the President or in the event of the
inability or refusal of the President to act, shall perform the duties of the
President, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the President.
SECTION 6. Secretary. The Secretary shall attend all meetings of the Board
of Directors and all meetings of stockholders and record all the proceedings
thereat in a book or books to be kept for that purpose; the Secretary shall also
perform like duties for the standing committees when required. The Secretary
shall give, or cause to be given, notice of all meetings of the stockholders and
special meetings of the Board of Directors, and shall perform such other duties
as may be prescribed by the Board of Directors or President, under whose
supervision he shall be. If the Secretary shall be unable or shall refuse to
cause to be given notice of all meetings of the stockholders and special
meetings of the Board of Directors, and if there be no Assistant Secretary, then
either the Board of Directors or the President may choose another officer to
cause such notice to be given. The Secretary shall have custody of the seal of
the Corporation and the Secretary or any Assistant Secretary, if there be one,
shall have authority to affix the same to any instrument requiring it and when
so affixed, it may be attested by the signature of the Secretary or by the
signature of any such Assistant Secretary. The Board of Directors may give
general authority to any other officer to affix the seal of the Corporation and
to attest the affixing by his signature. The Secretary shall see that all books,
reports, statements, certificates and other documents and records required by
law to be kept or filed are properly kept or filed, as the case may be.
SECTION 7. Treasurer. The Treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the Board of Directors. The Treasurer
shall disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the President and the Board of Directors, at its regular meetings, or when the
Board of Directors so requires, an account of all his transactions as Treasurer
and of the financial condition of the Corporation. If required by the Board of
Directors, the Treasurer shall give the Corporation a bond in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of his office and for the restoration to
the Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the Corporation.
SECTION 8. Assistant Secretaries. Except as may be otherwise provided in
these ByLaws, Assistant Secretaries, if there be any, shall perform such duties
and have such powers as from time to time may be
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assigned to them by the Board of Directors, the President, any Vice President,
if there be one, or the Secretary, and in the absence of the Secretary or in the
event of his disability or refusal to act, shall perform the duties of the
Secretary, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the Secretary.
SECTION 9. Assistant Treasurers. Assistant Treasurers, if there be any,
shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors, the President, any Vice President,
if there be one, or the Treasurer, and in the absence of the Treasurer or in the
event of his disability or refusal to act, shall perform the duties of the
Treasurer, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the Treasurer. If required by the Board of Directors,
an Assistant Treasurer shall give the Corporation a bond in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of his office and for the restoration to
the Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the Corporation.
SECTION 10. Other Officers. Such other officers as the Board of Directors
may choose shall perform such duties and have such powers as from time to time
may be assigned to them by the Board of Directors. The Board of Directors may
delegate to any other officer of the Corporation the power to choose such other
officers and to prescribe their respective duties and powers.
ARTICLE VI
STOCK
SECTION 1. Form of Certificates. Every holder of stock in the Corporation
shall be entitled to have a certificate signed, in the name of the Corporation
(i) by the President or a Vice President and (ii) by the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary of the
Corporation, certifying the number of shares owned by him in the Corporation.
SECTION 2. Signatures. Any or all of the signatures on a certificate may be
a facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
SECTION 3. Lost Certificates. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate, the
Board of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to advertise the same in such manner
as the Board of Directors shall require and/or to give the Corporation a bond in
such sum as it may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate alleged to have been
lost, stolen or destroyed.
SECTION 4. Transfers. Stock of the Corporation shall be transferable in the
manner prescribed by law and in these By-Laws. Transfers of stock shall be made
on the books of the Corporation only by the person named in the certificate or
by his attorney lawfully constituted in writing and upon the surrender of the
certificate therefor, which shall be cancelled before a new certificate shall be
issued.
SECTION 5. Record Date. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to express consent to corporate action in
writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock, or for the
purpose of any other lawful action, the Board of Directors may fix, in advance,
a record date, which shall not be more than sixty days nor less than ten days
before the date of such meeting, nor
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more than sixty days prior to any other action. A determination of stockholders
of record entitled to notice of or to vote at a meeting of stockholders shall
apply to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
SECTION 6. Beneficial Owners. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
law.
ARTICLE VII
NOTICES
SECTION 1. Notices. Whenever written notice is required by law, the
Certificate of Incorporation or these By-Laws, to be given to any director,
member of a committee or stockholder, such notice may be given by mail,
addressed to such director, member of a committee or stockholder, at his address
as it appears on the records of the Corporation, with postage thereon prepaid,
and such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. Written notice may also be given personally
or by telegram, telex or cable.
SECTION 2. Waivers of Notice. Whenever any notice is required by law, the
Certificate of Incorporation or these By-Laws, to be given to any director,
member of a committee or stockholder, a waiver thereof in writing, signed, by
the person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 1. Dividends. Dividends upon the capital stock of the Corporation,
subject to the provisions of the Certificate of Incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting, and may be
paid in cash, in property, or in shares of the capital stock. Before payment of
any dividend, there may be set aside out of any funds of the Corporation
available for dividends such sum or sums as the Board of Directors from time to
time, in its absolute discretion, deems proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the Corporation, or for any proper purpose, and the Board of
Directors may modify or abolish any such reserve.
SECTION 2. Disbursements. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
SECTION 3. Fiscal Year. The fiscal year of the Corporation shall be the
year ending March 31 or such other date as may be fixed by resolution of the
Board of Directors.
SECTION 4. Corporate Seal. The corporate seal shall have inscribed thereon
the name of the Corporation and the words "Corporate Seal, Delaware". The seal
may be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
ARTICLE IX
INDEMNIFICATION
SECTION 1. Power to Indemnify in Actions, Suits or Proceedings other than
Those by or in the Right of the Corporation. To the extent permitted by law, and
pursuant to Section 145 of the General Corporation Law of the State of Delaware,
subject to Section 3 of this Article IX, the Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed
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action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director or officer of the Corporation,
or is or was a director or officer of the Corporation serving at the request of
the Corporation as a director or officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
SECTION 2. Power to Indemnify in Actions, Suits or Proceedings by or in the
Right of the Corporation. To the extent permitted by law, and pursuant to
Section 145 of the General Corporation Law of the State of Delaware, subject to
Section 3 of this Article IX, the Corporation shall indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he is or was a director or
officer of the Corporation, or is or was a director or officer of the
Corporation serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation; except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
SECTION 3. Authorization of Indemnification. Any indemnification under this
Article IX (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
director or officer is proper in the circumstances because he has met the
applicable standard of conduct set forth in Section 1 or Section 2 of this
Article IX, as the case may be. Such determination shall be made (i) in addition
to any vote required under the Certificate of Incorporation, by a majority vote
of the directors who are not parties to such action, suit or proceeding, even
though less than a quorum, or (ii) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion, or (iii)
by the stockholders. To the extent, however, that a director or officer of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding described above, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith, without
the necessity of authorization in the specific case.
SECTION 4. Good Faith Defined. For purposes of any determination under
Section 3 of this Article IX, a person shall be deemed to have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation, or, with respect to any criminal action or
proceeding, to have had no reasonable cause to believe his conduct was unlawful,
if his action is based on the records or books of account of the Corporation or
another enterprise, or on information supplied to him by the officers of the
Corporation or another enterprise in the course of their duties, or on the
advice of legal counsel for the Corporation or another enterprise or on
information or records given or reports made to the Corporation or another
enterprise by an independent certified public accountant or by an appraiser or
other expert selected with reasonable care by the Corporation or another
enterprise. The term "another enterprise" as used in this Section 4 shall mean
any other corporation or any partnership, joint venture, trust, employee benefit
plan or other enterprise of which such person is or was serving at the request
of the Corporation as a director, officer,
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employee or agent. The provisions of this Section 4 shall not be deemed to be
exclusive or to limit in any way the circumstances in which a person may be
deemed to have met the applicable standard of conduct set forth in Sections 1 or
2 of this Article IX, as the case may be.
SECTION 5. Indemnification by a Court. Notwithstanding any contrary
determination in the specific case under Section 3 of this Article IX, and
notwithstanding the absence of any determination thereunder, any director or
officer may apply to any court of competent jurisdiction in the State of
Delaware for indemnification to the extent otherwise permissible under Sections
1 and 2 of this Article IX. The basis of such indemnification by a court shall
be a determination by such court that indemnification of the director or officer
is proper in the circumstances because he has met the applicable standards of
conduct set forth in Sections 1 or 2 of this Article IX, as the case may be.
Neither a contrary determination in the specific case under Section 3 of this
Article IX nor the absence of any determination thereunder shall be a defense to
such application or create a presumption that the director or officer seeking
indemnification has not met any applicable standard of conduct. Notice of any
application for indemnification pursuant to this Section 5 shall be given to the
Corporation promptly upon the filing of such application. If successful, in
whole or in part, the director or officer seeking indemnification shall also be
entitled to be paid the expense of prosecuting such application.
SECTION 6. Expenses Payable in Advance. Expenses incurred by a director or
officer in defending or investigating a threatened or pending action, suit or
proceeding shall be paid by the Corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such director or officer to repay such amount if it shall ultimately
be determined that he is not entitled to be indemnified by the Corporation as
authorized in this Article IX.
SECTION 7. Nonexclusivity of Indemnification and Advancement of
Expenses. The indemnification and advancement of expenses provided by or granted
pursuant to this Article IX shall not be deemed exclusive of any other rights to
which those seeking indemnification or advancement of expenses may be entitled
under any By-Law, agreement, contract, vote of stockholders or disinterested
directors or pursuant to the direction (howsoever embodied) of any court of
competent jurisdiction or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office. It is the policy
of the Corporation and the intent of this Article IX that indemnification of the
persons specified in Sections 1 and 2 of this Article IX shall be made to the
fullest extent permitted by law. If any change in law permits the Corporation to
indemnify the persons specified in Sections 1 and 2 of this Article IX to a
greater extent, the Corporation shall so indemnify such persons and these ByLaws
shall be deemed amended to provide for such additional indemnification. The
provisions of this Article IX shall not be deemed to preclude the
indemnification of any person who is not specified in Sections 1 or 2 of this
Article IX but whom the Corporation has the power or obligation to indemnify
under the provisions of the General Corporation Law of the State of Delaware, or
otherwise.
SECTION 8. Insurance. The Corporation may purchase and maintain insurance
on behalf of any person who is or was a director or officer of the Corporation,
or is or was a director or officer of the Corporation serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether or not the
Corporation would have the power or the obligation to indemnify him against such
liability under the provisions of this Article IX.
SECTION 9. Certain Definitions. For purposes of this Article IX, references
to "the Corporation" shall include, in addition to the resulting corporation,
any constituent corporation (including any constituent of a constituent)
absorbed in a consolidation or merger which, if its separate existence had
continued, would have had power and authority to indemnify its directors or
officers, so that any person who is or was a director or officer of such
constituent corporation, or is or was a director or officer of such constituent
corporation serving at the request of such constituent corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, shall stand in the
same position under the provisions of this Article IX with respect to the
resulting or surviving corporation as he would have
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with respect to such constituent corporation if its separate existence had
continued. For purposes of this Article IX, references to "fines" shall include
any excise taxes assessed on a person with respect to an employee benefit plan;
and references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director or officer with
respect to an employee benefit plan, its participants or beneficiaries; and a
person who acted in good faith and in a manner he reasonably believed to be in
the interest of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interests of
the Corporation" as referred to in this Article IX.
SECTION 10. Survival of Indemnification and Advancement of Expenses. The
indemnification and advancement of expenses provided by, or granted pursuant to,
this Article IX shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director or officer and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
SECTION 11. Limitation on Indemnification. Notwithstanding anything
contained in this Article IX to the contrary, except for proceedings to enforce
rights to indemnification (which shall be governed by Section 5 of this Article
IX), the Corporation shall not be obligated to indemnify any director or officer
in connection with a proceeding (or part thereof) initiated by such person
unless such proceeding (or part thereof) was authorized or consented to by the
Board of Directors of the Corporation.
SECTION 12. Indemnification of Employees and Agents. The Corporation may,
to the extent authorized from time to time by the Board of Directors, provide
rights to indemnification and to the advancement of expenses to employees and
agents of the Corporation similar to those conferred in this Article IX to
directors and officers of the Corporation.
ARTICLE X
AMENDMENTS
SECTION 1. Subject to the provisions contained in the Certificate of
Incorporation and in Section 3 of Article IV of these By-Laws, these By-Laws may
be altered, amended or repealed, in whole or in part, or new By-Laws may be
adopted by the stockholders or by the Board of Directors, provided, however,
that notice of such alteration, amendment, repeal or adoption of new By-Laws be
contained in the notice of such meeting of stockholders or Board of Directors as
the case may be.
SECTION 2. Entire Board of Directors. As used in these By-Laws, the term
"entire Board of Directors" means the total number of directors which the
Corporation would have if there were no vacancies.
IV-13
<PAGE> 182
ANNEX V
VOTING AGREEMENT
VOTING AGREEMENT, dated as of November 10, 1995 (the "Agreement"), by and
among INDSPEC Holding Corporation, a Delaware corporation (the "Company"),
Roundtable Corp., a Delaware corporation ("Roundtable"), Castle Harlan Partners
II, L.P., a Delaware limited partnership ("CHPII"), the other stockholders of
Roundtable named on Exhibit A hereto (together with CHPII, the "Roundtable
Group"), and the other parties named on the signature pages of this Agreement
(the "Other Stockholders", and together with the members of the Roundtable Group
and Roundtable, the "Stockholders").
WHEREAS, CHPII has organized Roundtable, a new corporation under Delaware
law;
WHEREAS, each of the Stockholders, other than Roundtable, owns the number
of shares of common stock, par value $.01 per share of the Company ("Company
Common Stock") set forth opposite such Stockholder's name on Schedule 1;
WHEREAS, concurrently herewith, the Company and Occidental Petroleum
Corporation, a Delaware corporation (the "Buyer"), will execute and deliver an
Agreement and Plan of Share Exchange, dated the date hereof (the "Exchange
Agreement") and the Company and Roundtable will execute and deliver a Merger
Agreement dated the date hereof (the "Merger Agreement"), pursuant to which, and
subject to the terms and conditions thereof, Roundtable will be merged with and
into the Company with the Company as the surviving corporation (the "Surviving
Corporation"), the members of the Roundtable Group will receive the number of
shares of Class B Common Stock, par value $.01 per share, of the Company ("Class
B Common Stock") equal to the number of shares of Common Stock of Roundtable,
$.01 par value per share ("Roundtable Common Stock") held by them, the other
stockholders of the Company will receive an aggregate of the number of shares of
Class A Common Stock, par value $.01 per share of the Company ("Class A Common
Stock", and together with the Class B Common Stock, the "New Company Common
Stock"), equal to the number of shares of Company Common Stock held by such
stockholders, and the outstanding Company Common Stock held by Roundtable will
be cancelled (the "Merger") (capitalized terms that are not otherwise defined
herein shall have the respective meanings set forth in the Exchange Agreement);
and
WHEREAS, pursuant to the Exchange Agreement, and subject to the terms and
conditions thereof, the Buyer shall offer to exchange (the "Exchange") certain
shares of the New Company Common Stock to be outstanding upon consummation of
the Merger for shares of common stock, par value $.20 per share, of the Buyer
("Buyer Common Stock") pursuant to exchange offers (the "Exchange Offers");
NOW, THEREFORE, in consideration of and premised upon the various
representations, warranties, covenants and other agreements and undertakings of
the Company and the Stockholders contained in this Agreement, and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Company and the Stockholders agree as follows:
ARTICLE I
PROXY OF THE STOCKHOLDERS
SECTION 1.01. Voting Agreement.
(a) Each of the members of the Roundtable Group hereby agrees that they
shall, as soon as practicable on or after the date hereof, execute a written
consent with respect to all of the shares of Roundtable Common Stock held by
them in favor of the adoption and approval of the Merger and the Merger
Agreement.
(b) The Other Stockholders and Roundtable hereby agree that, during the
time this Agreement is in effect, at any meeting of the stockholders of the
Company, and in any action by consent of the stockholders of the Company, the
Other Stockholders and Roundtable shall vote all of the shares of Company Common
Stock
<PAGE> 183
which they own or are otherwise entitled to vote in favor of any proposal for
the adoption or approval of the Merger and the Merger Agreement.
(c) Each of the members of the Roundtable Group, Roundtable and the Other
Stockholders agree that, during the time this Agreement is in effect, at any
meeting of the stockholders of the Company, however called, and in any action by
consent of the stockholders of the Company, the Stockholders shall vote all of
the shares of the Company Common Stock and the New Company Common Stock (i)
against any proposal relating to (A) the sale of the stock or assets of the
Company or any of its Subsidiaries or any interest therein, (B) the merger,
consolidation or other combination of the Company or any of its Subsidiaries
with any person, or (C) the liquidation, dissolution or reorganization of the
Company or any of its Subsidiaries, except as specifically contemplated by the
Exchange Agreement; and (ii) as otherwise necessary or appropriate to enable the
Company and Buyer to consummate the transactions contemplated by the Exchange
Agreement. The Stockholders acknowledge receipt and review of a copy of the
Exchange Agreement and Merger Agreement.
SECTION 1.02. Contribution to Roundtable. Each member of the Roundtable
Group hereby agrees to contribute the shares of Company Common Stock set forth
on Exhibit A opposite such member's name to Roundtable in exchange for an equal
number of shares of Roundtable Common Stock.
SECTION 1.03. Exchange Offers. Each member of the Roundtable Group hereby
agrees to tender (and not withdraw) its shares of Class B Common Stock to the
Buyer and subject to termination or waiver of the Stockholders Agreement as
amended by Amendment No. 1 between INDSPEC Chemical Corporation and certain
other parties named therein (the "Stockholders Agreement"), the Other
Stockholders hereby agree to tender (and not withdraw) their shares of Class A
Common Stock to the Buyer, in the Exchange Offers pursuant to the terms provided
for in the Exchange Agreement.
SECTION 1.04. Hart-Scott-Rodino. CHPII shall promptly make all filings
required by it in connection with the Merger and Exchange Offers under the HSR
Act.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each Stockholder hereby represents and warrants to Buyer as follows:
SECTION 2.01. Authority Relative to This Agreement. Such Stockholder has
all requisite power and authority to enter into this Agreement and to perform
its obligations hereunder. This Agreement has been duly authorized, executed and
delivered by such Stockholder and, assuming this Agreement constitutes a valid
and binding obligation of the other parties hereto, constitutes a legal, valid
and binding obligation of such Stockholder, enforceable against such Stockholder
in accordance with its terms, except to the extent that the enforceability
thereof may be limited by: (i) applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or similar laws from time to time in
effect affecting generally the enforcement of creditors' rights and remedies;
and (ii) general principles of equity, including, without limitation, principles
of reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in equity or at law).
SECTION 2.02. No Conflict. (a) The execution and delivery of this Agreement
by such Stockholder and performance of its obligations hereunder do not (i)
conflict with or violate any laws applicable to such Stockholder or by which the
shares of Roundtable Common Stock, Company Common Stock or New Company Common
Stock of such Stockholder are bound or affected or (ii) result in any breach of
or constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of a lien
or encumbrance on any of the shares of Roundtable Common Stock, Company Common
Stock or New Company Common Stock of such Stockholder pursuant to, any note,
bond, mortgage, indenture, contract, lease, license, permit, franchise or other
instrument or obligation to which such Stockholder is a party or by which such
Stockholder or the shares of Roundtable Common Stock, Company Common Stock or
New
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<PAGE> 184
Company Common Stock of such Stockholder are bound or affected, except under the
Stockholders Agreement.
(b) The execution and delivery of this Agreement by such Stockholder does
not, and the performance of this Agreement by such Stockholder will not, require
any consent, authorization or approval or other action by, or notice to or
filing with, any Governmental Authority or other person, except for applicable
requirements, if any, of the Securities Exchange Act of 1934, as amended, or the
HSR Act, and except under the Stockholders Agreement.
SECTION 2.03. Title to the Shares. As of the date hereof, each Stockholder
is the record and beneficial owner of the number of shares of Company Common
Stock and shares of Company Common Stock subject to Options set forth opposite
such Stockholder's name on Schedule 1 hereto, and after giving effect to the
Merger, as of the Closing Date, will be the record and beneficial owner of the
number of shares of New Company Common Stock equal to the number of shares of
Company Common Stock held by such Stockholder as of the date hereof. Such shares
of Company Common Stock are all of such shares as are owned, either of record or
beneficially, by such Stockholder. Such Stockholder owns all the shares of
Company Common Stock and, after the Merger and immediately prior to the Closing
Date, will own all of the shares of New Company Common Stock set forth opposite
such Stockholder's name on Schedule 1 hereto free and clear of all security
interests, liens, claims, pledges, options, rights of first refusal, contracts,
limitations on such Stockholder's voting rights, charges and other encumbrances
of any nature whatsoever. Other than pursuant to the irrevocable proxy granted
to John K. Castle, dated the date hereof and the Voting Trust Agreement, dated
as of December 16, 1993, by and among John K. Castle and the Stockholders named
therein, and except as provided in this Agreement, such Stockholder has not
appointed or granted (and will not, after the date hereof, appoint or grant) any
proxy, which appointment or grant is still effective, with respect to the shares
set forth opposite such Stockholder's name on Schedule 1 hereto.
SECTION 2.04. Formation of Roundtable. CHPII represents that Roundtable has
been duly incorporated and is validly existing and in good standing under the
laws of Delaware and the authorized capital stock of Roundtable consists of
35,000 shares of Roundtable Common Stock, 29,496 shares of which have been
issued to members of the Roundtable Group as set forth on Exhibit A. CHPII
represents that Roundtable has engaged in no business prior to the Merger and
has been formed solely for the purpose of engaging in the Merger. CHPII
represents that Roundtable has no assets (other than the amounts used to
capitalize Roundtable), liabilities, rights or obligations except pursuant to
the Merger Agreement. CHPII represents that Roundtable is not a party to any
agreement other than the Merger Agreement and this Agreement.
ARTICLE III
COVENANTS OF THE STOCKHOLDERS AND ROUNDTABLE
SECTION 3.01. No Disposition or Encumbrance of Shares. Each Stockholder
hereby covenants and agrees that, except as contemplated by this Agreement, such
Stockholder shall not, and shall not offer or agree to, sell, transfer, tender,
assign, hypothecate or otherwise dispose of, grant a proxy (other than the
irrevocable proxy granted to John K. Castle, dated the date hereof) or power of
attorney with respect to, create or permit to exist any security interest, lien,
claim, pledge, option, right of first refusal, contract, limitation on such
Stockholder's voting rights, charge or other encumbrance of any nature
whatsoever with respect to, such Stockholder's shares of Roundtable Common
Stock, Company Common Stock or New Company Common Stock or directly or
indirectly, initiate, solicit or encourage any person to take actions which
could reasonably be expected to lead to the occurrence of any of the foregoing;
provided, however, that this Section 3.01 shall not prevent the transfer of
Roundtable Common Stock, Company Common Stock or New Company Common Stock by
reason of law, or to a personal representative of a Stockholder or to one or
more members of any Stockholder's family or to trusts, partnerships or similar
entities for their benefit, provided, further, however, that such transferee(s)
shall take such Roundtable Common Stock, Company Common Stock or New Company
Common Stock subject to and be fully bound by this Agreement with the same
effect as if he, she or it were a party hereto. As used herein, the term
"personal representative" shall mean the executor or
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<PAGE> 185
executors of the will or administrator or administrators of the estate, the
heirs, legatees or other beneficiaries thereunder and all other legal
representatives (by operation of law or otherwise) of a Stockholder.
SECTION 3.02. Limitation on Transactions in Buyer Common Stock. Each of the
Stockholders agrees that, (i) during the period beginning on the date hereof and
ending on the Closing Date, and (ii) as long as such Stockholder owns any shares
of New Company Common Stock, for the thirty (30) day period preceding any Option
Closing Date (as such term is defined in the Surviving Corporation's certificate
of incorporation), such Stockholder shall not and shall not permit any
affiliate, representative, agent or other person or entity acting on its behalf,
directly or indirectly, to (x) sell, offer to sell or commence any sale,
solicitation, marketing or other efforts to facilitate the disposition of any
shares of Buyer Common Stock, or (y) sell short or enter into any put equivalent
position with respect to any shares of Buyer Common Stock.
SECTION 3.03. No Negotiations. The Stockholders shall not, and shall not
permit any of their Subsidiaries, affiliates, representatives, agents or any
other Person acting for or on behalf of any of them to, solicit, entertain
offers from, negotiate with, or in any manner discuss, encourage, recommend or
agree to any proposal relating to (a) the sale of the stock or assets of
Roundtable, the Company, the Surviving Corporation or any of their Subsidiaries
or any interest therein, (b) the merger, consolidation or other combination of
Roundtable, the Company, the Surviving Corporation or any of their Subsidiaries
with any Person, or (c) the liquidation, dissolution or reorganization of
Roundtable, the Company, the Surviving Corporation or any of their Subsidiaries,
except as specifically contemplated by the Exchange Agreement and the Merger
Agreement. Without limiting the generality of the foregoing, the Stockholders
shall not, and shall not permit any of their Subsidiaries, affiliates,
representatives, agents or any other Person acting for or on behalf of any of
them to, furnish or cause to be furnished any information with respect to
Roundtable, the Company, the Surviving Corporation or any of their Subsidiaries
to any Person (other than the Buyer and its employees and agents). If any of the
Stockholders or any of their Subsidiaries, affiliates, representatives, agents
or any other Person acting for or on behalf of any of them receives from any
Person any offer, proposal or informational request that may be subject to this
Section, the Stockholders shall promptly advise such Person, by written notice,
of the terms of this Section and shall promptly deliver a copy of such notice to
the Buyer. Nothing herein shall, to the extent not prohibited by the Exchange
Agreement, prohibit any Stockholder who is an officer of the Company from acting
in his capacity as such, or who is a director of the Company from participating
in meetings of the Board or Committees thereof.
ARTICLE IV
MISCELLANEOUS
SECTION 4.01. Termination. This Agreement shall remain in effect until the
first to occur of (i) the Closing Date or (ii) the termination of the Exchange
Agreement; provided, however, that the provisions set forth in Sections 3.02,
4.02 and 4.03 shall survive the Closing.
SECTION 4.02. Further Assurances. The Stockholders and the Company will
execute and deliver all such further documents and instruments and take all such
further action as may be necessary in order to consummate the transactions
contemplated hereby, including without limitation, the transactions contemplated
by the Exchange Agreement.
SECTION 4.03. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
SECTION 4.04. Entire Agreement. This Agreement constitutes the entire
agreement between the Company and the Stockholders with respect to the subject
matter hereof and supersedes all prior agreements and understandings, both
written and oral, between the Company and the Stockholders with respect to the
subject matter hereof.
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<PAGE> 186
SECTION 4.05. Amendment. This Agreement may not be amended, altered or
modified except by a written instrument executed by the parties hereto.
SECTION 4.06. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of this Agreement is not affected in any manner materially adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in a mutually acceptable manner in order that the
terms of this Agreement remain as originally contemplated to the fullest extent
possible.
SECTION 4.07. Governing Law. This Agreement shall be construed and
interpreted according to the laws of the State of New York applicable to
contracts made and to be performed wholly within such state.
SECTION 4.08. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and each of which shall
constitute one and the same instrument.
SECTION 4.09. Third Party Beneficiary. The Buyer shall be an intended third
party beneficiary of this Agreement and shall have the right to enforce this
Agreement directly in a court of law or equity or both to protect its rights
hereunder. Without limiting the generality of the foregoing, it is the intention
of the parties hereto that this Agreement is made for the benefit of the Buyer
and to induce the Buyer to commence the Exchange Offers and the other
transactions contemplated by the Exchange Agreement.
IN WITNESS WHEREOF, each Stockholder has duly executed this Agreement.
/s/ JEFFREY M. SIEGAL
--------------------------------------
Jeffrey M. Siegal
/s/ HOWARD WEISS
--------------------------------------
Howard Weiss
/s/ SYLVIA ROSEN
--------------------------------------
Sylvia Rosen
/s/ JUSTIN WENDER
--------------------------------------
Justin Wender
/s/ T. J. DERMOT DUNPHY
--------------------------------------
T. J. Dermot Dunphy
/s/ RICHARD Y. SMITH
--------------------------------------
Richard Y. Smith
/s/ JOHN A. HERRMANN, JR.
--------------------------------------
John A. Herrmann, Jr.
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<PAGE> 187
/s/ WILLIAM S. LEE
--------------------------------------
William S. Lee
/s/ FRANK M. SPINOLA
--------------------------------------
Frank M. Spinola
/s/ ERNIE L. DANNER
--------------------------------------
Ernie L. Danner
CASTLE HARLAN PARTNERS II, L.P.
By: Castle Harlan, Inc.
as Investment Manager
By: /s/ JEFFREY M. SIEGAL
----------------------------------
Name: Jeffrey M. Siegal
Title: Managing Director
ROUNDTABLE CORP.
By: /s/ JEFFREY M. SIEGAL
----------------------------------
Name: Jeffrey M. Siegal
Title: President
Agreed and accepted
as of November 10, 1995
INDSPEC HOLDING CORPORATION
By: /s/ FRANK M. SPINOLA
----------------------------------
Name: Frank M. Spinola
Title: President
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<PAGE> 188
SCHEDULE 1
<TABLE>
<CAPTION>
TOTAL SHARES OF TOTAL SHARES OF
COMPANY COMMON COMPANY COMMON
STOCK OWNED SHARES STOCK OWNED
(INCLUDING UNDERLYING (EXCLUDING
SHARES OPTIONS SHARES
UNDERLYING (VESTED AND UNDERLYING
STOCKHOLDER OPTIONS) UNVESTED) OPTIONS)
----------- --------------- ----------- ---------------
<S> <C> <C> <C>
Castle Harlan Partners II, L.P...................... 26,792 -- 26,792
Frank Spinola....................................... 5,673 3,273 2,400
Ernie L. Danner..................................... 2,727 1,591 1,136
William S. Lee...................................... 2,102 1,352 750
Durmot Dunphy....................................... 556 -- 556
John Herrmann....................................... 111 -- 111
Richard Smith....................................... 111 -- 111
Jeffrey Siegal...................................... 56 -- 56
Howard Weiss........................................ 22 -- 22
Justin Wender....................................... 7 -- 7
Sylvia Rosen........................................ 11 -- 11
</TABLE>
V-7
<PAGE> 189
EXHIBIT A
<TABLE>
<CAPTION>
SHARES OF COMPANY
COMMON STOCK TO
BE EXCHANGED FOR
EQUAL NUMBER OF
SHARES OF
ROUNDTABLE COMMON
ROUNDTABLE GROUP STOCK
---------------- -----------------
<S> <C>
Castle Harlan Partners II, L.P.............................................. 26,792
Frank M. Spinola............................................................ 1,920
Durmot Dunphy............................................................... 556
John Herrmann............................................................... 111
Richard Smith............................................................... 61
Jeffrey Siegal.............................................................. 31
Howard Weiss................................................................ 12
Justin Wender............................................................... 7
Sylvia Rosen................................................................ 6
------
Total............................................................. 29,496
======
</TABLE>
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<PAGE> 190
ANNEX VI
ENABLING AGREEMENT
This ENABLING AGREEMENT (this "Agreement") is made and entered into as of
November 10, 1995 by and between INDSPEC Holding Corporation, a Delaware
corporation (the "Company"), and Occidental Petroleum Corporation, a Delaware
corporation ("Occidental").
RECITALS
WHEREAS, pursuant to an Agreement and Plan of Share Exchange, dated as of
the date hereof (the "Exchange Agreement"), by and between Occidental and the
Company, Occidental has agreed, subject to the terms and conditions set forth in
the Exchange Agreement, to make offers (the "Exchange Offers") to exchange
shares of Class A Common Stock, par value $.01 per share (the "Class A Common
Stock"), and Class B Common Stock, par value $.01 per share (the "Class B Common
Stock" and, together with the Class A Common Stock, the "Common Stock"), of the
Company for shares of Common Stock, par value $.20 per share (the "Occidental
Common Stock"), of Occidental;
WHEREAS, pursuant to the Exchange Agreement, Occidental has agreed to
provide the Company and stockholders of the Company with certain rights and
privileges pursuant to this Agreement; and
WHEREAS, as a condition to the commencement of the Exchange Offers, the
Company has agreed to provide Occidental with certain rights and privileges
pursuant to this Agreement.
NOW, THEREFORE, the parties hereto hereby agree as follows:
AGREEMENT
1. Definitions. Capitalized terms used but not otherwise defined herein
shall have the respective meanings ascribed thereto in the Certificate of
Incorporation attached as Exhibit A to the Merger Agreement (as defined in the
Exchange Agreement) (the "Certificate of Incorporation"). For purposes of this
Agreement, the following terms shall have the following meanings:
"Change of Control Obligations" shall mean any and all obligations of the
Company to make payments in respect of notes tendered to the Company pursuant to
a Change of Control Offer.
"Change of Control Offer" shall have the meaning set forth in the
Indenture.
"Company Common Stock" shall have the meaning set forth in the Exchange
Agreement.
"Credit Agreement" shall have the meaning set forth in the Exchange
Agreement.
"Dissenters' Rights Obligations" shall mean any and all obligations of the
Company to make payments required by law to satisfy claims of stockholders who
have the right to appraisal of and payment for their shares of Company Common
Stock pursuant to Section 262 of the Delaware General Corporation Law as a
result of the Merger.
"Expenditure Amount" means, as of the date of any balance sheet, (i) the
aggregate amount of expected expenditures (excluding salaries, wages, employee
benefits, utilities, and recurring repairs and maintenance to equipment caused
by ordinary wear and tear, and any other similar allocation of overhead)
required in order for the Company to take the actions specified in the Review
Results (as defined in Section 8 hereof) less (ii) the aggregate amount of
claims for indemnification, contribution or other recovery against third parties
to the extent such recovery could be reflected on the Company's balance sheet as
an asset in accordance with GAAP.
"Funding Obligations" shall mean the Dissenters' Rights Obligations and the
Change of Control Obligations.
"Indenture" shall have the meaning set forth in the Exchange Agreement.
<PAGE> 191
"Merger" shall have the meaning set forth in the Exchange Agreement.
"Options" shall have the meaning set forth in the Exchange Agreement.
"Put Commencement Date" means the date of the Put Notice.
"Put Equity Value" means an amount equal to (i) the EBITDA Multiple
multiplied by the LTM Operating EBITDA, minus (ii) Net Debt plus Other
Liabilities, in each case, (x) calculated as of the last day of the fiscal month
immediately preceding the fiscal month in which the Put Exchange Date occurs or
(y) if the Put Offer Registration Statement has not been declared effective
within 120 days after the Trigger Date, and such amount would be greater,
calculated as of the last day of the fiscal month in which the Trigger Date
occurs.
"Put Offer Debt Target" means $80 million, or such greater amount as may be
determined, from time to time after the Closing Date, by the Board of Directors
as it deems appropriate, in its sole discretion, in connection with Debt
incurred (or the repayment of which is deferred) to finance capital expenditures
that have been identified as extraordinary by the Board of Directors in its sole
discretion.
"Put Offer Ratio" means (i) the Put Equity Value divided by the aggregate
number of shares of Common Stock outstanding on the Put Exchange Date,
determined on a Fully Diluted Basis, divided by (ii) the Market Price of a share
of Occidental Common Stock on the fifth Trading Day next preceding the Put
Exchange Date.
"Trigger Date" means the date that is the later of (i) the third
anniversary of the Closing Date and (ii) the date on which Occidental receives
the Debt Notice (as defined below).
2. Obligation to Effect Put Offer.
(a) Promptly, but in any event within five (5) Business Days after the date
on which Net Debt is less than the Put Offer Debt Target, the Company shall give
written notice (the "Debt Notice") thereof to Occidental, specifying the amount
of Net Debt. As soon as practicable after the Trigger Date, Occidental shall (x)
use commercially reasonable efforts to prepare and file a registration statement
(the "Put Offer Registration Statement") under the Securities Act relating to
the Put Offer, and (y) use commercially reasonable efforts to cause the Put
Offer Registration Statement to become effective as soon as practicable after
its filing; provided, however, that Occidental may delay the filing or
effectiveness of the Put Offer Registration Statement for a valid business
purpose, as determined by Occidental, in its sole and absolute discretion, but
which may include any substantially concurrent public or private offering of
equity securities or any other transaction that might be adversely affected by
the filing or effectiveness of the Put Offer Registration Statement.
(b) As soon as practicable after the Put Offer Registration Statement has
been declared effective, Occidental shall make an offer (the "Put Offer") to the
holders of shares of Class A Common Stock to exchange all or a portion of such
shares for that number of fully paid and nonassessable shares of Occidental
Common Stock equal to (i) the number of shares of Class A Common Stock so
exchanged, multiplied by (ii) the Put Offer Ratio. Notwithstanding any provision
hereof, the Put Offer shall be made in compliance with all applicable laws,
including without limitation, all applicable Federal and state securities laws.
(c) The Put Offer shall be commenced by mailing to each record holder of
shares of Class A Common Stock a notice (the "Put Notice"), which shall govern
the terms of the Put Offer. The Put Notice shall include or be accompanied by
all information required by law and shall specify:
(i) the instructions that holders of shares of Class A Common Stock
must follow in order to exchange such shares;
(ii) the method of calculating the Put Offer Ratio;
(iii) the exchange date (the "Put Exchange Date"), which shall be a
Business Day no later than 40 days from the date the Put Notice is mailed;
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<PAGE> 192
(iv) that any holder of shares of Class A Common Stock electing to
exchange such shares pursuant to the Put Offer shall be required to
surrender the certificate or certificates evidencing such shares to the
exchange agent specified in the Put Notice (the "Exchange Agent"), which
certificate or certificates shall be duly endorsed, or accompanied by
proper instruments of transfer and, if required pursuant to this Section,
an amount sufficient to pay any transfer or similar tax (or evidence
demonstrating that such taxes have been paid); and
(v) whether or not Occidental intends to cause the Company to effect
the Second Call Option if a sufficient number of shares of Class A Common
Stock are tendered pursuant to the Put Offer.
(d) On or prior to the fifth Business Day following the Put Exchange Date,
Occidental shall cause the Exchange Agent to deliver at the offices of the
Company or to mail to the holders at the addresses specified by each holder of
Class A Common Stock so exchanged a certificate or certificates evidencing the
number of full shares of Occidental Common Stock to which such person shall be
entitled, together with a cash payment in respect of any fraction of a share, as
hereinafter provided.
(e) The Company shall enter into such agreements and take all such other
actions (including those reasonably requested by Occidental) necessary or
desirable to expedite or facilitate the Put Offer. Without limiting the
foregoing, the Company shall provide to Occidental on a timely basis all
information (financial and otherwise) necessary or desirable to be included in
or to accompany the Put Notice and, if requested by Occidental, (i) make
customary representations and warranties with respect to the information
relating to the Company and its Subsidiaries provided to Occidental for use in
the Put Offer Registration Statement, the prospectus included therein and
documents, if any, incorporated or deemed to be incorporated by reference
therein, and confirm the same if and when reasonably requested; (ii) obtain
opinions of counsel to the Company and updates thereof (which counsel and
opinions (in form, scope and substance) shall be reasonably satisfactory to
Occidental); (iii) obtain "cold comfort" letters and updates thereof from the
independent certified public accountants of the Company (which letters and
updates (in form, scope and substance) shall be reasonably satisfactory to
Occidental); and (iv) deliver such other documents and certificates as may be
reasonably requested by Occidental.
(f) If Occidental gives notice pursuant to Section 4 hereof requiring the
Company to effect the Second Call Option in accordance with the Certificate of
Incorporation, Occidental may terminate the Put Offer.
(g) No fractional shares or scrip representing fractional shares of
Occidental Common Stock shall be issued upon exchange of Class A Common Stock
pursuant to the Put Offer. The number of full shares of Occidental Common Stock
issuable upon exchange of shares of Class A Common Stock shall be computed on
the basis of the aggregate number of shares of Class A Common Stock so
surrendered by each record holder thereof. In lieu of any fractional share of
Occidental Common Stock that would otherwise be issuable upon exchange of any
shares of Class A Common Stock, the holder thereof shall be entitled to a cash
adjustment in respect of such fractional share in an amount equal to the same
fraction of the Market Price of a share of Occidental Common Stock on the fifth
Trading Day immediately preceding the Put Exchange Date, calculated to the
nearest cent, with one-half cent rounded upward, and the number of full shares
of Occidental Common Stock issuable upon exchange thereof shall be decreased to
the next lowest number of whole shares.
(h) Occidental shall not be required to pay any tax that may be payable in
respect of any issuance or delivery of shares of Occidental Common Stock
pursuant to the Put Offer, and no such issuance or delivery shall be made unless
and until the holder of shares of Class A Common Stock being exchanged has paid
the amount of any such tax or has established, to the satisfaction of
Occidental, that such tax has been paid.
3. Obligation to Sell Occidental Common Stock. If the Company exercises the
First Call Option or the Second Call Option, Occidental shall sell to the
Company, on or prior to the First Call Closing Date or the Second Call Closing
Date, as the case may be, such number of validly issued, fully paid and
non-assessable shares of Occidental Common Stock as the Company shall be
obligated to deliver to holders of Class A Common Stock in satisfaction of its
redemption obligations thereunder. The purchase price for each share of
Occidental Common Stock shall be the Market Price thereof that was used to
determine the First Call Ratio
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or the Second Call Ratio, as applicable, and shall be payable in cash or a
mutually satisfactory promissory note.
4. Right to Require Redemption. Upon receipt by the Company of a written
notice from Occidental to such effect, the Company shall effect promptly the
First Call Option or the Second Call Option, as the case may be, and shall
promptly take all actions that Occidental may request that are necessary or
desirable therefor. In its notice with respect to the First Call Option,
Occidental shall indicate the First Call Closing Date, which shall be a date not
less than 45 days after the date of such notice.
5. Tag-Along Rights.
(a) Occidental shall not, and shall not permit any of its affiliates
subject to its control (collectively with Occidental, the "Selling Group"), to
sell, directly or indirectly, any shares of Common Stock (any such sale, a
"Tag-Along Sale"), unless adequate provision is made in connection therewith so
that all holders of Class A Common Stock (each, an "Other Stockholder") have the
right, but not the obligation, to participate in such sale, on substantially the
same terms and conditions thereof, by selling the number of shares of Class A
Common Stock respectively owned by them, to be calculated in the following
manner. The aggregate number of shares of Common Stock that each Other
Stockholder shall be entitled to include in such Tag-Along Sale (such Other
Stockholder's "Allotment") shall equal the product of (i) the number of shares
that such Other Stockholder elects to include in such Tag-Along Sale (which may
include the aggregate number of shares of Class A Common Stock that such Other
Stockholder owns, has the immediate right to acquire or will have the right to
acquire after giving effect to the Tag-Along Sale), multiplied by (ii) a
fraction, the numerator of which shall equal the total number of shares of
Common Stock proposed to be sold pursuant to the TagAlong Sale and the
denominator of which shall equal the sum of the number of shares of Common Stock
held by the Selling Group and the number of shares of Common Stock held by the
Other Stockholders that have elected to participate in the Tag-Along Sale.
(b) The foregoing notwithstanding, this Section shall not apply to any sale
of Common Stock (i) solely among members of the Selling Group, (ii) to the
public pursuant to an effective registration statement under the Securities Act
or (iii) that has been approved by the affirmative vote of the greater of (A)
five members of the Company's Board of Directors or (B) a majority of the
directors of the Company then in office.
(c) The Selling Group members participating in a Tag-Along Sale (or
Occidental on behalf of such Selling Group members) shall promptly provide each
Other Stockholder with written notice (the "Sale Notice") not more than 60 nor
less than 30 days prior to the proposed date of the consummation of the Tag-
Along Sale (the "Sale Date"). In order to facilitate the prompt delivery of the
Sale Notice, the Company hereby covenants to provide the Selling Group members
participating in a Tag-Along Sale or Occidental, as the case may be, access to
the stock record books of the Company. Each Sale Notice shall set forth: (i) the
name and address of each proposed purchaser of shares of Common Stock in the
Tag-Along Sale; (ii) the number of shares proposed to be sold pursuant to the
Tag-Along Sale; (iii) the proposed amount and form of consideration to be paid
for such shares and the terms and conditions of payment offered by each proposed
purchaser; (iv) the aggregate number of shares of Class A Common Stock
outstanding on the date (the "Notice Date") of the Sale Notice that are held of
record by such Other Stockholder; (v) the aggregate number of shares of Common
Stock outstanding on the Notice Date; (vi) such Other Stockholder's Allotment
(assuming that all Other Stockholders elect to include all of their shares of
Common Stock in the Tag-Along Sale); (vii) the Sale Date; and (viii) the manner
in which such Other Stockholder may participate in the Tag-Along Sale, including
a form of the written notice (the "Tag-Along Notice") that such Other
Stockholder will be required to deliver to Occidental.
Each Other Stockholder that wishes to participate in the Tag-Along Sale
shall complete, sign and deliver to Occidental a Tag-Along Notice no less than
15 days prior to the Sale Date. The Tag-Along Notice shall set forth, among
other things, the number of shares of Common Stock that such Other Stockholder
elects to include in the Tag-Along Sale, which shall not exceed the aggregate
number of shares that such Other Stockholder owns, has the immediate right to
acquire or will have the right to acquire after giving effect to the Tag-Along
Sale. The Tag-Along Notices given by the Other Stockholders shall constitute
their binding agreements to sell such shares on the terms and conditions
applicable to such sale, as provided herein. The
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participating members of the Selling Group shall determine the aggregate number
of shares to be sold by each participating Other Stockholder in any given
Tag-Along Sale in accordance with the terms hereof.
If a Tag-Along Notice is not received by Occidental from an Other
Stockholder 15 days prior to the Sale Date, the Selling Group members shall have
the right to sell to the proposed purchaser or transferee, without any
participation by such Other Stockholders, the number of shares of Common Stock
specified in the Sale Notice, but only on terms and conditions not materially
more favorable to the Selling Group members than those stated in such Sale
Notice and only if such sale occurs on a date within 60 business days of the
Sale Date.
(d) The provisions of this Section shall terminate on the earlier of (i)
the consummation of any of the Exchange Options or (ii) the date (the "Publicly
Held Date") on which the market value of outstanding shares of Common Stock, or
any capital stock of the Company issued to holders of shares of Common Stock
(whether or not in their capacity as holders of shares of Common Stock and
whether in connection with a stock split, stock dividend, reorganization or
otherwise), that have been effectively registered under the Act and disposed of
in accordance with a registration statement or statements under the Act covering
such shares equals or exceeds $50 million. For purposes of the preceding
sentence, "market value" shall be determined by multiplying the Market Price of
such shares by the aggregate number of such shares.
6. Financial Information.
(a) Annual Financial Statements. The Company shall deliver to Occidental,
as soon as available, but not later than ninety (90) days after the end of each
fiscal year, (i) a copy of the audited consolidated balance sheet of the Company
and its subsidiaries as of the end of such year and the related consolidated
statements of operations, stockholders' equity (where applicable) and cash flows
for such fiscal year, setting forth, in each case, in comparative form, the
figures for the previous year, accompanied by the opinion of a nationally-
recognized independent public accounting firm stating that such consolidated
financial statements present fairly the financial position of the Company and
its subsidiaries for the periods indicated, in conformity with GAAP, applied on
a basis consistent with prior years and (ii) a certificate signed by the Chief
Financial Officer of the Company, setting forth in reasonable detail the
Company's determination of the LTM Operating EBITDA, Net Debt and Other
Liabilities, in each case, calculated as of the last day of such fiscal year.
(b) Quarterly Financial Statements. The Company shall deliver to
Occidental, as soon as available, but not later than forty-five (45) days after
the end of each of the first three (3) fiscal quarters of each year, (i) a copy
of the unaudited consolidated balance sheet of the Company and its subsidiaries
as of the end of such quarter and the related consolidated statements of
operations, stockholders' equity (where applicable) and cash flows for the
period commencing on the first day and ending on the last day of such quarter,
accompanied by a certificate signed by the Chief Financial Officer of the
Company, stating that such financial statements are complete and correct to the
best of his knowledge after reasonable investigation and present fairly the
financial position of the Company and its subsidiaries for the periods
indicated, in conformity with GAAP for interim financial statements, applied on
a basis consistent with prior quarters and (ii) a certificate signed by the
Chief Financial Officer of the Company, setting forth in reasonable detail the
Company's determination of the LTM Operating EBITDA, Net Debt and Other
Liabilities, in each case, calculated as of the last day of such fiscal quarter.
(c) Monthly Financial Information. The Company shall deliver to Occidental,
as soon as available, but not later than fifteen (15) days after the end of each
fiscal month, (i) a copy of the unaudited consolidated balance sheet of the
Company and its subsidiaries as of the end of such month and the related
consolidated statements of operations, stockholders' equity (where applicable)
and cash flows for the period commencing on the first day and ending on the last
day of such month, accompanied by a certificate signed by the Chief Financial
Officer of the Company, certifying that the information contained therein,
subject to audit, is complete and correct to the best of his knowledge after
reasonable investigation and (ii) a schedule setting forth the Company's
determination of the LTM Operating EBITDA, Net Debt and Other Liabilities, in
each case, calculated as of the last day of such fiscal month.
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(d) Company Plans and Projections. The Company shall deliver to Occidental,
not less than forty-five (45) days after the beginning of each fiscal year,
copies of (i) the Company's business plan for the upcoming fiscal year,
including an annual operating budget and capital expenditure budget and
projections; (ii) the Company's financial projections for the upcoming fiscal
year, as prepared by the Company's Chief Financial Officer; and (iii) a year-end
budget reconciliation reconciling the actual operating results and financial
performance of the Company over the past fiscal year with the budgets and
projections previously provided by the Company to Occidental for such period,
together with textual comments explaining any material discrepancies between the
figures.
(e) Periodic Reports and Filings; Press Releases. The Company shall deliver
to Occidental, promptly after the same are sent or released, copies of all
reports, notices, proxy statements and financial statements which the Company
sends to any Other Stockholders and copies of all press releases made by the
Company or any of its subsidiaries, promptly after the same are filed, copies of
all financial statements and regular, periodical or special reports which the
Company or any of its subsidiaries may make to, or file with, the Securities and
Exchange Commission or any successor or similar governmental authority.
(f) Accountants' Reports. The Company shall deliver to Occidental, promptly
after the same are received, copies of all reports relating to the Company which
the independent certified public accountants of the Company deliver to the
Company or any of its subsidiaries.
(g) Exchange Option Information. The Company shall deliver to Occidental,
as soon as available, but not later than thirty (30) days after the date as of
which the Put Equity Value, the First Call Equity Value or the Second Call
Equity Value, as the case may be, is determined, a copy of the audited
consolidated balance sheet of the Company and its subsidiaries and the related
consolidated statements of operations, stockholders' equity (where applicable)
and cash flows for the twelve month period ending on the date that the Put
Equity Value, the First Call Equity Value or the Second Call Equity Value, as
the case may be, is determined, setting forth, in each case, as separate line
items, LTM Operating EBITDA, Net Debt, Other Liabilities, bonuses to officers
and New Plant Capital Expenditures, accompanied by the opinion of a
nationally-recognized independent public accounting firm stating that such
consolidated financial statements present fairly the financial position of the
Company and its subsidiaries for the periods indicated, in conformity with GAAP,
applied on a basis consistent with prior years. The Company shall provide
Occidental with an opportunity to review all work papers prepared or used in
connection with the preparation of such financial statements.
(h) Other Information. The Company shall deliver to Occidental, promptly,
such additional financial and other information as Occidental may from time to
time reasonably request.
(i) Full Disclosure. The Company shall ensure that all written information
and reports furnished to Occidental by the Company or any of its subsidiaries do
not and will not contain any untrue statement of a material fact and do not and
will not omit to state any material fact or any fact necessary to make the
statements contained therein not misleading in light of the circumstances in
which made, and will promptly disclose to Occidental and correct any defect or
error that may be discovered therein.
(j) Trade Secrets. Notwithstanding the foregoing provisions of this Section
6, the Company shall not be obligated to disclose to Occidental any trade
secrets or information relating to a particular line of business of the Company
or any of its subsidiaries that, if disclosed to Occidental, could adversely
affect the Company as a result of Occidental's competition with the Company in
such line of business.
7. Access to Books and Records; Inspection of Property. The Company shall
maintain, and shall cause each of its subsidiaries to maintain, proper books of
record and account, in which full, true and correct entries in conformity with
GAAP consistently applied shall be made of all financial transactions and
matters involving the business of the Company and its subsidiaries. The Company
shall permit, and shall cause each of its subsidiaries to permit, Occidental and
its financial advisors, legal counsel, accountants, consultants and other
representatives to visit and inspect any of their properties, to conduct audits
of the Company's books and records, to examine their corporate, financial and
operating records, and make copies thereof or abstracts therefrom, and to
discuss their affairs, finances and accounts with their directors, officers and
independent public accountants at any time during normal business hours and as
often as may be reasonably desired. The
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Company authorizes Occidental and its financial advisors, legal counsel,
accountants, consultants and other representatives to communicate directly with
the Company's independent accountants and authorizes such accountants to
disclose to such Persons any and all financial statements and other information
of any kind, including the substance of any oral information or conversation
that such accountants may have with respect to the business, financial condition
and other affairs of the Company and its subsidiaries.
8. Environmental Compliance.
(a) Not later than the date (the "Compliance Date") that is 30 months after
the Closing Date, the Company shall complete the tasks set forth on Schedule A
hereto.
(b) At any time, or from time to time, on or after the first anniversary of
the Closing Date, Occidental may perform a review and audit of the Company's
properties and facilities in order to determine (i) the Company's compliance
with all Environmental Laws (as defined in the Exchange Agreement) and (ii)
whether or not the tasks set forth on Schedule A have been completed. The
Company shall provide Occidental and its representatives with access to the
Company's properties and facilities and its books and records in order to permit
Occidental to complete such review and audit. Occidental agrees that its
investigations shall not include sampling of soil or ground water except (x) as
consistent with remedial work undertaken by the Company or (y) as may be
required to confirm information indicating that there has been a release of
materials on or from the Company's properties or facilities on or after December
16, 1988 which was not disclosed, or the extent of which was not substantially
disclosed, to Occidental as of the date of the Exchange Agreement. Occidental
shall deliver the results of its review (the "Review Results") to the Company
(the date of such delivery being the "Initial Determination Date"). If
Occidental determines that additional actions are required in order for the
Company to comply with Environmental Laws or complete the tasks set forth on
Schedule A, to the extent that the Company does not dispute the determinations
set forth in the Review Results, the Company shall promptly take all such
required actions, including, where appropriate, approving detailed action plans
consistent with the Company's procedures for approving the expenditure of money
on a project, and shall reserve or increase reserves to the extent necessary to
reflect on all balance sheets prepared as of any date subsequent to the Initial
Determination Date, the Expenditure Amount. In preparing any income statement
after the Initial Determination Date, the Company's operating income will not be
reduced by the amount of such expenditures.
(c) If the Company disputes the Review Results, the Company may, within 30
days of the Initial Determination Date, notify Occidental of its specific
objection, the basis therefor, and the name of an independent environmental
consultant (the "Company Consultant") that the Company has retained to review
Occidental's Review Results. The Company shall cause the Company Consultant to
deliver its report (the "Company Consultant's Report") to Occidental and the
Company within 60 days after the Initial Determination Date. If the Company
Consultant concurs with any part of the Review Results, the Company shall
promptly take all actions specified in the Review Results with respect to which
the Company Consultant concurs, and shall reserve or otherwise reflect on all
balance sheets prepared as of any date subsequent to the date of delivery of the
Company Consultant's Report, the Expenditure Amounts with respect to which the
Company Consultant concurs. If the Company Consultant disputes any part of the
Review Results, the Company and Occidental shall, within 60 days after the
Initial Determination Date, mutually agree on an independent environmental
consultant (the "Mediation Consultant") to be retained jointly by Occidental and
the Company (and whose fees and expenses shall be paid equally by Occidental and
the Company). In the event the parties cannot agree to a Mediation Consultant,
each party shall, no later than 75 days after the Initial Determination Date,
select a reputable environmental consulting firm, and such firms shall, acting
in good faith, no later than 90 days after the Initial Determination Date,
select a Mediation Consultant. Such Mediation Consultant shall be retained and
paid as provided in the previous sentence. Within 90 days (or 120 days if the
parties must select environmental consultants to choose a mediation consultant)
after the Initial Determination Date, the Mediation Consultant shall review
those aspects of the Review Results and the Company Consultant's Report that are
in dispute and deliver to Occidental and the Company its report (the "Mediation
Consultant's Report") as to which determinations are correct. The Mediation
Consultant may determine that the Company Consultant's Report is correct in
certain respects and that the Review Results are correct in certain respects;
provided, however, that the Mediation Consultant shall not be
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authorized to make any decision, and shall be instructed not to offer any
opinion relating to the timing or scheduling of any corrective actions required
by the Review Results or by Occidental in connection with the Review Results.
The determinations set forth in the Mediation Consultant's Report shall be final
and binding on Occidental and the Company. After the delivery of the Mediation
Consultant's Report, the Company shall promptly take all actions as may be
required in accordance with the Mediation Consultant's Report and shall reserve
or otherwise reflect on its balance sheet the Expenditure Amounts required to
comply with the actions required pursuant to the Mediation Consultant's Report.
Notwithstanding anything to the contrary herein, Occidental may, in its sole
discretion, relax any timing or scheduling requirement in the Review Report or
otherwise determined by Occidental, and such decision shall be effective when
notice thereof has been delivered in writing to the Company.
9. Prohibition of Certain Redemptions. The Company shall not purchase or
otherwise acquire any shares of Common Stock (except for purchases pursuant to
employment agreements or as required by law in connection with employee benefit
plans) without the prior written consent of Occidental, which may be withheld in
its sole discretion.
10. Profit Sharing Targets. Occidental represents that it has no present
intention to eliminate the Company's employee profit sharing plan or to reduce
the aggregate amount of payments thereunder or participation therein.
11. Funding Obligations.
(a) The Company shall use commercially reasonable efforts to keep available
or obtain sufficient funds to satisfy the Funding Obligations, including,
without limitation, borrowing all available funds pursuant to the Company's bank
credit facilities and using commercially reasonable efforts to borrow funds from
other sources.
(b) If the Company has complied with paragraph (a) of this Section but does
not have sufficient funds to satisfy any or all of the Funding Obligations, the
Company shall give written notice (each, a "Funding Notice") to such effect to
Occidental, specifying which Funding Obligation the Company is unable to satisfy
and the amount of any such insufficiency. In order for a Funding Notice to be
timely, the Company must deliver the Funding Notice to Occidental as promptly as
practicable but in any event not less than ten business days prior to the
earliest date on which the Company is obligated to make payments pursuant
thereto.
(c) Occidental shall provide the Company with funds in an amount sufficient
to enable the Company to satisfy all Funding Obligations for which the Company
has timely delivered a Funding Notice to Occidental. With respect to Dissenters'
Rights Obligations, (i) Occidental shall lend funds to the Company pursuant to a
fully amortizing promissory note with an annual rate of interest of 8% and the
shortest practicable maturity but which shall not, in any event, exceed five
years and (ii) to the extent that the Company cannot borrow the full amount of
any Funding Obligation insufficiency, Occidental shall purchase preferred stock
of the Company, the terms of which are satisfactory to the Company and
Occidental. Occidental acknowledges and agrees that any such loan with respect
to the Dissenters' Rights Obligations shall be subordinated to the Company's
Credit Agreement. With respect to Change of Control Obligations, Occidental
shall lend funds to the Company pursuant to a promissory note with substantially
the same terms as the notes issued pursuant to the Indenture or, at Occidental's
option and if the Indenture permits, by purchasing from the Company the notes
tendered to the Company pursuant to the Change of Control Offer concurrently
with the Company's purchase of such notes pursuant to the Change of Control
Offer.
12. New Employees.
(a) Within six (6) months after the Closing Date, the Company or INDSPEC
Chemical Corporation ("INDSPEC") shall hire three new employees (the "New
Employees") to hold positions in each of the areas of financial planning and
analysis, process safety and marketing. Occidental shall select the New
Employees and present them to INDSPEC. INDSPEC shall employ each of the New
Employees so selected and presented, subject to INDSPEC's approval of each New
Employee, in its sole discretion. Each New Employee will be employed by INDSPEC
on an "at-will" basis, subject to INDSPEC's right to terminate each such New
Employee, at any time, with or without cause, unless INDSPEC shall otherwise
agree. If
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INDSPEC does not approve any New Employee selected and presented by Occidental,
or if INDSPEC terminates any New Employee employed by it, Occidental shall have
the right to select and present to INDSPEC a replacement for each such New
Employee.
(b) Occidental and INDSPEC initially anticipate that such employees shall
be mid-level managers, reporting directly to and under the direction and
supervision of INDSPEC officers or managers holding the following titles: CFO,
Manager, Environmental Affairs, and VP-Sales, respectively. The New Employees
shall perform job duties comparable to similarly situated employees at INDSPEC,
or if none exist, as are customarily performed by one holding a comparable
position in a business comparable to INDSPEC.
(c) INDSPEC shall pay the New Employees salaries and provide to them
benefits at the same level as it provides for its employees in comparable
positions, or if none exist, as exist for one holding a comparable position in a
business comparable to INDSPEC.
(d) Occidental shall pay all moving and relocation expenses incurred in
connection with INDSPEC employing such New Employees.
13. Technology Matters.
(a) The respective technical representatives nominated from time to time by
each of Occidental and INDSPEC shall meet not less than once per calendar
quarter to discuss areas of mutual interest with respect to technology issues,
including the sharing of information and the potential exploitation of areas of
mutual interest.
(b) If either Occidental or INDSPEC informs the other of an area of
interest in which the exploitation of the technology of such other party would
be beneficial, each of Occidental and INDSPEC agree to use their commercially
reasonable efforts to determine if there exists a mutually beneficial basis upon
which to exploit or permit the exploitation of such technology and, if so, to
agree to terms upon which such technology may be so exploited; provided, that to
the extent consistent with the terms of existing contracts, agreements or
instruments with which the parties hereto are bound, the parties agree that the
terms upon which such technology will be exploited, if at all, will be on no
less favorable than on a "most favored nation's" basis. The obligation to use
such commercially reasonable efforts will terminate on the date one hundred
eighty (180) days after the date on which the parties first commence
discussions.
(c) In the event that INDSPEC contemplates providing technology assistance
to a third party to enable or assist such party in a product field related to a
field engaged in by Occidental, literally or in effect by license or assignment,
INDSPEC shall offer Occidental the opportunity on an exclusive or non-exclusive
basis, in INDSPEC's discretion, to enter the field under a license or assignment
on substantially similar terms as INDSPEC is prepared to offer the third party.
(d) Occidental and INDSPEC agree that any information exchanged pursuant to
these provisions shall be subject to mutually agreeable confidentiality
provisions that are typical for the chemical industry and for similar types of
exchanges.
14. Treatment of Incentive Stock Options.
(a) After consummation of any of the Exchange Options, the Company and
Occidental shall take such actions as Occidental determines to be necessary or
appropriate to convert Options into, or replace Options with, options to
purchase common stock of Occidental in accordance with Section 424(a) of the
Internal Revenue Code of 1986, as amended, for the purpose of preserving the
economic benefits thereof, based on the First Call Ratio, the Second Call Ratio
or the Put Offer Ratio, as applicable, as of the date of consummation of such
Exchange Option.
(b) If, after the consummation of any of the Exchange Options, an employee
of the Company or any of its subsidiaries that holds unvested Options terminates
employment with the Company or any of its subsidiaries, the Chief Executive
Officer of the Company shall have the right, on behalf of the Company, to amend
the option plan or agreement applicable to such Options or take such other
similar actions as may be necessary and appropriate to preserve for the holder
of such Options the economic benefits thereof as if such
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Options had vested prior to such termination; provided, that the aggregate
amount of cash payments pursuant to this sentence shall not exceed $300,000.
15. Mathematical Calculations. Unless otherwise specified in this
Agreement, in any instance in which this Agreement requires that a mathematical
calculation be performed, or makes reference to a fraction, the result obtained
after performing such calculation, and any such fraction, shall be expressed as
a decimal and rounded to the nearer 1/100th, with .5/100 rounded upward to
1/100.
16. Notices.
(a) All notices, requests, claims, demands and other communications under
this Agreement shall be in writing and shall be deemed given if delivered
personally or sent by facsimile transmission or overnight courier (providing
proof of delivery) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
If to the Company:
INDSPEC Holding Corporation
411 Seventh Avenue, Suite 300
Pittsburgh, Pennsylvania 15219
Attention: William S. Lee
Fax No.: (412) 765-0439
with a copy to:
Eckert Seamans Cherin & Mellot
600 Grant Street, 42nd Floor
Pittsburgh, Pennsylvania 15219
Attention: John J. Kearns
Fax No.: (412) 566-6099
If to Occidental:
Occidental Petroleum Corporation
10889 Wilshire Boulevard
Los Angeles, California 90024
Attention: Stephen I. Chazen
Fax No.: (310) 443-8690
with a copy to:
Occidental Petroleum Corporation
10889 Wilshire Boulevard
Los Angeles, California 90024
Attention: Donald P. de Brier
Fax No.: (310) 443-6333
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(b) All financial statements and information and certificates required to
be delivered pursuant to Section 6 of this Agreement shall, in addition to the
Persons specified in paragraph (a) of this Section, be delivered to the
following Persons (or such other Persons as Occidental may designate from time
to time in accordance with paragraph (a) of this Section):
Occidental Petroleum Corporation
10889 Wilshire Boulevard
Los Angeles, California 90024
Attention: Mark M. Koppel
Barbara H. Ryan
Fax No.: (310) 443-6812
and
Occidental Chemical Corporation
5005 LBJ Freeway
Dallas, TX 75244
Attention: Scott J. Wilson
Rick Lorraine
Fax No.: (214) 404-3669
17. Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other terms and provisions of this Agreement shall nevertheless
remain in full force and effect. In addition, upon any such determination that
any term or other provision is invalid, illegal or incapable of being enforced,
the parties hereby agree that there will be substituted therefor automatically
and without further action by any party hereto, as part of this Agreement, a
valid, legal and enforceable term or provision as similar in its form, substance
and effect to such invalid, illegal or unenforceable term or other provision as
may be possible.
18. Further Assurances. From time to time, each party, as and when
requested by the other party hereto, shall execute and deliver, or cause to be
executed and delivered, all such agreements, documents and instruments, and
shall take, or cause to be taken, all such further or other actions as such
requesting party may reasonably deem necessary or desirable to consummate the
provisions of this Agreement.
19. Assignment. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns, but
neither this Agreement nor any of the rights, interests or obligations hereunder
shall be assigned by either party hereto without the prior written consent of
the other party.
20. Amendment; Waiver. This Agreement may not be modified, amended, altered
or supplemented except by an agreement in writing executed by both parties
hereto. The failure of any party to this Agreement to assert any of its rights
under this Agreement or otherwise shall not constitute a waiver of those rights.
21. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York applicable to contracts made
and to be performed in that State, regardless of the laws that might otherwise
govern under applicable principles of conflict of laws thereof.
22. Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party.
23. Effectiveness. This Agreement shall become effective on and as of the
Closing Date.
24. Third Party Beneficiaries. Holders of Class A Common Stock are intended
to be third party beneficiaries with respect to, and to be individually entitled
to enforce the benefits of, Section 5 of this Agreement. Holders of Options are
intended to be third party beneficiaries with respect to, and to be individually
entitled to enforce the benefits of, Section 14 of this Agreement.
VI-11
<PAGE> 201
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.
OCCIDENTAL PETROLEUM CORPORATION,
a Delaware corporation
By: /s/ STEPHEN I. CHAZEN
------------------------------------
Name: Stephen I. Chazen
Its: Executive Vice President-
Corporate Development
INDSPEC HOLDING CORPORATION,
a Delaware corporation
By: /s/ FRANK M. SPINOLA
------------------------------------
Name: Frank M. Spinola
Its: President
VI-12
<PAGE> 202
ANNEX VII
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
sec. 262. Appraisal Rights. (a) Any stockholder of a corporation of this
State who holds shares of stock on the date of the making of a demand pursuant
to subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to sec. 228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of his shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec. 251 (other than a merger effected pursuant to
subsection (g) of sec. 251), sec. 252, sec. 254, sec. 257, sec. 258, sec. 263 or
sec. 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall be
available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of sec. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to sec.sec. 251, 252,
254, 257, 258, 263 and 264 of this title to accept for such stock anything
except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock or depository receipts at the effective
date of the merger or consolidation will be either listed on a national
securities exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash in
lieu of fractional shares or fractional depository receipts described in the
foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a
<PAGE> 203
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsection (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of his
shares shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to demand
the appraisal of his shares. A proxy or vote against the merger or consolidation
shall not constitute such a demand. A stockholder electing to take such action
must do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation who
has complied with this subsection and has not voted in favor of or consented to
the merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to section 228 or
253 of this title, the surviving or resulting corporation, either before the
effective date of the merger or consolidation or within 10 days thereafter,
shall notify each of the stockholders entitled to appraisal rights of the
effective date of the merger or consolidation and that appraisal rights are
available for any or all of the shares of the constituent corporation, and shall
include in such notice a copy of this section. The notice shall be sent by
certified or registered mail, return receipt requested, addressed to the
stockholder at his address as it appears on the records of the corporation. Any
stockholder entitled to appraisal rights may, within 20 days after the date of
mailing of the notice, demand in writing from the surviving or resulting
corporation the appraisal of his shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and that
the stockholder intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least
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<PAGE> 204
1 week before the day of the hearing, in a newspaper of general circulation
published in the City of Wilmington, Delaware or such publication as the Court
deems advisable. The forms of the notices by mail and by publication shall be
approved by the Court, and the costs thereof shall be borne by the surviving or
resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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<PAGE> 205
ANNEX VIII
MORGAN STANLEY
Morgan Stanley & Co.
Incorporated
1585 Broadway
New York, New York 10036
(212) 761-4000
November 10, 1995
Board of Directors
INDSPEC Holding Corporation
411 Seventh Avenue, Suite 300
Pittsburgh, PA 15219
Members of the Board:
We understand that INDSPEC Holding Corporation ("INDSPEC" or the "Company") and
Occidental Petroleum Corporation ("Occidental") propose to enter into an
Agreement and Plan of Share Exchange, dated November 10, 1995 (the "Share
Exchange Agreement"). In connection with the transactions contemplated by the
Share Exchange Agreement, INDSPEC will enter into (i) a Merger Agreement dated
November 10, 1995 (the "Merger Agreement") with Roundtable Inc. ("Roundtable"),
a corporation formed by certain shareholders of INDSPEC and to be capitalized
with all or a portion of the INDSPEC shares held by such holders and (ii) a
Voting Agreement, dated November 10, 1995 (the "Voting Agreement") with
Roundtable, Castle Harlan Partners II, L.P. ("Castle Harlan") and certain other
parties. Pursuant to the Merger Agreement and the Voting Agreement, INDSPEC will
be recapitalized so that shares of common stock of INDSPEC held by Roundtable
will be converted into Class B Common Stock, par value $0.01 per share (the
"Class B Common Stock") and shares of common stock of INDSPEC held by
shareholders other than Roundtable will be converted into Class A Common Stock,
par value $0.01 per share (the "Class A Common Stock"). The recapitalization
contemplated by the Merger Agreement and related documents (the "Merger") will
be consummated pursuant to a majority vote of the outstanding shares of common
stock of INDSPEC, subject to certain other conditions.
The Share Exchange Agreement provides, among other things, that, following the
Merger, Occidental will commence an exchange offer (the "Exchange Offer") for up
to 8,504 shares of Class A Common Stock and each of the outstanding shares of
Class B Common Stock. Pursuant to the terms of the Exchange Offer, shares of the
Company (whether Class A Common Stock or Class B Common Stock) which are
tendered and accepted will be exchanged (the "Exchange") for shares of
Occidental common stock, par value $0.20 per share. The equity value per share
of Company common stock (the "Equity Value Per Share"), as set forth in the
Share Exchange Agreement, will be determined by dividing the implied total
equity value of the Company ($131,000,000) by the total number of shares of
Class A Common Stock and Class B Common Stock deemed outstanding on a fully
diluted basis at the closing of the Exchange. The number of shares of Occidental
common stock to be exchanged for each tendered and accepted share of Company
common stock will be calculated as the Equity Value Per Share divided by the
average of the last reported sales prices for Occidental common stock on each of
the twenty consecutive trading days ending on the fifth day prior to the date of
closing of the Exchange.
Pursuant to the Share Exchange Agreement, holders of Class A Common Stock (other
than Occidental) not exchanged in the Exchange and holders of options to
purchase Class A Common Stock will also receive additional consideration equal,
in the aggregate, to the number of shares of Occidental common stock having a
value, determined in the same manner as set forth above, equal to $3,000,000
(the "Additional Consideration").
<PAGE> 206
Following the Exchange, Occidental will own no more than 49.0% of the voting
power of the outstanding shares of the Company. Pursuant to an Enabling
Agreement between the Company and Occidental, Occidental has agreed, subject to
the fulfillment of certain conditions which can occur no earlier than three
years following the closing of the Exchange, to offer to purchase shares of
Class A Common Stock held following the Exchange (the "Put Option"). In
addition, the Company's Certificate of Incorporation following the Merger will
provide that the Company has the right to redeem outstanding shares of Class A
Common Stock, at Occidental's direction, under certain circumstances (the
"Redemption Options"). The terms and conditions of the Exchange Offer are more
fully set forth in the Share Exchange Agreement and other related documents.
Occidental common stock received by holders of Company common stock pursuant to
the Exchange and the Additional Consideration, and the Put Option and the
Redemption Options, shall be deemed to be, in the aggregate, the "Transaction
Consideration." Holders of Class A Common Stock (whether or not exchanged and
whether or not tendered pursuant to the Exchange Offer) and Class B Common Stock
shall be deemed to be, in the aggregate, the "Company Stockholders."
You have asked for our opinion as to whether the Transaction Consideration to be
received by the Company Stockholders pursuant to the Share Exchange Agreement
(and related documents) is fair, in the aggregate, from a financial point of
view to such holders.
For purposes of the opinion set forth herein, we have:
(i) analyzed certain publicly available financial statements and other
information of the Company;
(ii) analyzed certain internal financial statements and other financial
and operating data concerning the Company prepared by the management
of the Company;
(iii) analyzed certain financial projections prepared by the management of
the Company;
(iv) discussed the past and current operations and financial condition and
the prospects of the Company with senior executives of the Company;
(v) analyzed certain publicly available financial statements and other
information of Occidental;
(vi) discussed the past and current operations and financial condition and
the prospects of Occidental with senior executives of Occidental;
(vii) reviewed the reported prices and trading activity for Occidental's
common stock;
(viii) compared certain financial information of the Company with the
financial and trading performance of certain comparable publicly
traded companies and their securities;
(ix) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
(x) participated in discussions and negotiations among representatives of
the Company and Occidental and their legal advisors, as well as other
potential purchasers of the Company;
(xi) reviewed the Agreement and Plan of Share Exchange, dated November 10,
1995, and certain related documents; and
(xii) have performed other such analyses as we have deemed appropriate.
We have assumed and relied upon, without independent verification, the accuracy
and completeness of the information reviewed by us for the purposes of this
opinion. With respect to the financial projections (including management's
estimates relating to capital expenditures), we have assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the future financial performance of the Company. With regard to
potential environmental liabilities, we have reviewed a 1993 environmental
assessment update prepared for INDSPEC Chemical Corporation by Remcor, Inc., and
have not conducted an independent appraisal with respect to any environmental
liabilities. Our opinion is
VIII-2
<PAGE> 207
necessarily based on economic, market and other conditions as in effect on, and
the information made available to us as of, the date hereof.
We have acted as financial advisor to the Board of Directors of the Company in
connection with this transaction and will receive a fee for our services. Morgan
Stanley has, from time to time, acted as financial advisor to Occidental on
various assignments and has received compensation for such services.
It is understood that this letter is for the information of the Board of
Directors of the Company only and does not constitute a recommendation to the
Company Stockholders as to whether or not to exchange their Class A Common Stock
or Class B Common Stock in the Exchange Offer or a recommendation as to how the
Company Stockholders should vote in connection with the Merger.
We note that pursuant to the terms of the Share Exchange Agreement and related
documents, holders of Class A Common Stock will have the ability to exchange up
to approximately 32.9% of their holdings of Class A Common Stock (if all shares
of Class A Common Stock are tendered), while Class B Common Stock will have the
ability to exchange 100% of their holdings of Class B Common Stock, and do not
express a view as to the comparative fairness, from a financial point of view,
of this aspect of the Exchange Offer. We also note that we are not expressing a
view as to whether the financial condition which triggers the exercisability of
the Put Option will or will not be satisfied in the future or whether the
Redemption Options will or will not be consummated.
Based on the foregoing, we are of the opinion on the date hereof that the
Transaction Consideration to be received by the Company Stockholders pursuant to
the Share Exchange Agreement (and related documents) is, in the aggregate, fair
from a financial point of view to such holders.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ CANDICE E. KOEDERITZ
------------------------------------
Candice E. Koederitz
Managing Director
VIII-3
<PAGE> 208
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers under certain circumstances for liabilities incurred in connection
with their activities in such capacities (including reimbursement for expenses
incurred). Occidental's Restated Certificate of Incorporation, as amended,
provides for the elimination of personal liability of its directors to the full
extent permitted by the Delaware General Corporation Law and Occidental has
entered into indemnification agreements with each director and certain officers
providing for additional indemnification. Article VIII of Occidental's By-Laws
also provides that Occidental shall indemnify directors and officers under
certain circumstances for liabilities and expenses incurred by reason of their
activities in such capacities. In addition, Occidental has insurance policies
that provide liability coverage to directors and officers while acting in such
capacities.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
<TABLE>
<C> <S>
2.1 Agreement and Plan of Share Exchange, dated as of November 10, 1995, by and between
Occidental Petroleum Corporation and INDSPEC Holding Corporation (incorporated by
reference to Annex I of the proxy statement/prospectus contained in this
registration statement).
3.1 Restated Certificate of Incorporation of Occidental, together with all certificates
amendatory thereof filed with the Secretary of State of Delaware through December
23, 1994 (incorporated by reference to Exhibit 3.(i) to Occidental's Annual Report
on Form 10-K for the fiscal year ended December 31, 1994).
3.2 By-laws of Occidental, as amended through December 15, 1994 (incorporated by
reference to Exhibit 3.(ii) to Occidental's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994).
3.3 Rights Agreement, dated as of October 17, 1986, between Occidental and The Chase
Manhattan Bank (National Association), as the initial Rights Agent thereunder
(subsequently replaced by Chemical Bank, as successor Rights Agent), together with
the form of Rights certificate (incorporated by reference to Exhibit 4.1 to
Occidental's Current Report on Form 8-K dated October 17, 1987).
5 Opinion of Robert E. Sawyer, Esq., Associate General Counsel of Occidental.*
23.1 Consent of Robert E. Sawyer, Esq. (included in the opinion filed as Exhibit 5).*
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Ernst & Young LLP.
23.4 Consent of Morgan Stanley & Co. Incorporated.
23.5 Consent of Castle Harlan, Inc.*
24 Power of Attorney.*
- ---------------
* Previously filed.
</TABLE>
II-1
<PAGE> 209
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section (10)(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) (1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will not
be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such
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<PAGE> 210
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(e) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(f) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
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<PAGE> 211
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California, on February 21, 1996.
OCCIDENTAL PETROLEUM CORPORATION
By DONALD P. DE BRIER
------------------------------------
Donald P. de Brier
Executive Vice President
and General Counsel
Pursuant to the requirements of the Securities Act, this Amendment No. 1 to
the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ---------------------------- ------------------
<S> <C> <C>
RAY R. IRANI* Chairman of the Board of
- --------------------------------------------- Directors, President and
Ray R. Irani Chief Executive Officer
ANTHONY R. LEACH* Executive Vice President and
- --------------------------------------------- Chief Financial Officer
Anthony R. Leach
SAMUEL P. DOMINICK, JR.* Vice President and
- --------------------------------------------- Controller (Chief Accounting
Samuel P. Dominick, Jr. Officer)
Director
- ---------------------------------------------
Albert Gore
ARTHUR GROMAN* Director
- ---------------------------------------------
Arthur Groman
J. ROGER HIRL* Director
- ---------------------------------------------
J. Roger Hirl
Director
- ---------------------------------------------
John W. Kluge
DALE R. LAURANCE* Director
- ---------------------------------------------
Dale R. Laurance
</TABLE>
II-4
<PAGE> 212
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ---------------------------- ------------------
<S> <C> <C>
IRVIN W. MALONEY* Director
- ---------------------------------------------
Irvin W. Maloney
GEORGE O. NOLLEY* Director
- ---------------------------------------------
George O. Nolley
JOHN F. RIORDAN* Director
- ---------------------------------------------
John F. Riordan
RODOLFO SEGOVIA* Director
- ---------------------------------------------
Rodolfo Segovia
AZIZ D. SYRIANI* Director
- ---------------------------------------------
Aziz D. Syriani
ROSEMARY TOMICH* Director
- ---------------------------------------------
Rosemary Tomich
*By: DONALD P. DE BRIER February 21, 1996
- ---------------------------------------------
Donald P. de Brier
Attorney-in-fact
</TABLE>
II-5
<PAGE> 213
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGES
- ------- ------------------------------------------------------------------------ ------------
<C> <S> <C>
2.1 Agreement and Plan of Share Exchange, dated as of November 10, 1995, by
and between Occidental Petroleum Corporation and INDSPEC Holding
Corporation (incorporated by reference to Annex I of the proxy
statement/prospectus contained in this registration statement)..........
3.1 Restated Certificate of Incorporation of Occidental, together with all
certificates amendatory thereof filed with the Secretary of State of
Delaware through December 23, 1994 (incorporated by reference to Exhibit
3.(i) to Occidental's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994)................................................
3.2 By-laws of Occidental, as amended through December 15, 1994
(incorporated by reference to Exhibit 3.(ii) to Occidental's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994)........
3.3 Rights Agreement, dated as of October 17, 1986, between Occidental and
The Chase Manhattan Bank (National Association), as the initial Rights
Agent thereunder (subsequently replaced by Chemical Bank, as successor
Rights Agent), together with the form of Rights certificate
(incorporated by reference to Exhibit 4.1 to Occidental's Current Report
on Form 8-K dated October 17, 1987).....................................
5 Opinion of Robert E. Sawyer, Esq., Associate General Counsel of
Occidental*.............................................................
23.1 Consent of Robert E. Sawyer, Esq. (included in the opinion filed as
Exhibit 5)*.............................................................
23.2 Consent of Arthur Andersen LLP..........................................
23.3 Consent of Ernst & Young LLP............................................
23.4 Consent of Morgan Stanley & Co. Incorporated............................
23.5 Consent of Castle Harlan, Inc.*.........................................
24 Power of Attorney*......................................................
- ---------------
* Previously filed.
</TABLE>
<PAGE> 1
EXHIBIT 23.2
CONSENT OF ARTHUR ANDERSEN LLP
As independent public accountants, we hereby consent to the incorporation
by reference in this Registration Statement of our reports dated February 3,
1995 incorporated by reference or included in Occidental Petroleum Corporation's
Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and to
all references to our firm included in this Registration Statement.
ARTHUR ANDERSEN LLP
Los Angeles, California
February 21, 1996
<PAGE> 1
EXHIBIT 23.3
CONSENT OF ERNST & YOUNG LLP
We consent to the reference to our firm under the captions "Independent
Accountants" and "Experts" and to the use of our report dated April 28, 1995,
included in the Proxy Statement of INDSPEC Holding Corporation and Prospectus of
Occidental Petroleum Corporation that is made a part of this Registration
Statement.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
February 21, 1996
<PAGE> 1
EXHIBIT 23.4
CONSENT OF MORGAN STANLEY & CO. INCORPORATED
February 21, 1996
INDSPEC Holding Corporation
411 Seventh Avenue, Suite 300
Pittsburgh, PA 15219
Dear Sirs:
We hereby consent to the inclusion of the Registration Statement (No.
33-65129) on Form S-4 of Occidental Petroleum Corporation ("Occidental"),
relating to the proposed transaction involving INDSPEC Holding Corporation,
Roundtable Corp., a newly formed Delaware corporation, and Occidental, of our
opinion letter appearing as Annex VIII to the Proxy Statement/Prospectus which
is a part of the Registration Statement, and to the references to our firm name
therein. In giving such consent, we do not thereby admit that we come within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended, or the rules and regulations adopted by the Securities
and Exchange Commission thereunder nor do we admit that we are experts with
respect to any part of such Registration Statement within the meaning of the
term "experts" as used in the Securities Act of 1933, as amended, or the rules
and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: CANDICE E. KOEDERITZ
-----------------------------------
Candice E. Koederitz
Managing Director
